PAPER – 1 : ACCOUNTING

Question No. 1 is compulsory.

Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions may be made and indicated in answer by the
candidates.
Working Notes should form part of the answer.
Question 1
Answer the following questions:
(a) In the books of Topmaker Limited, carrying amount of Plant and Machinery as on 1 stApril,
2022 is ` 56,30,000.
On scrutiny, it was found that a purchase of Machinery worth ` 21,12,000 was included in
the purchase of goods on 1 stJune, 2022. On 30 thJune, 2022 the company disposed a
Machine having book value of ` 9,60,000 (as on 1 stApril, 2022) for ` 8,25,000 in part
exchange of a new machine costing ` 15,65,000.
The company charges depreciation @ 10% p.a. on written down value method on Plant
and Machinery.
You are required to compute:
(i) Depreciation to be charged to Profit & Loss Account;
(ii) Book value of Plant & Machinery as on 31 stMarch, 2023; and
(iii) Profit/Loss on exchange of Plant & Machinery. (5 Marks)
(b) Trower Limited is an Indian importer. It imports goods from True View Limited situated at
London. Trower Limited has a payable of £50,000 to True View Limited as on 31 st March,
2023. True View Limited has given Trower Limited the following two options:
(i) Pay immediately with a cash discount of 1% on the payable.
(ii) Pay after 6 months with interest @ 5% p.a. on the payable.
The borrowing rate for Trower Limited in rupees is 15% p.a.
The following are the exchange rates:
Date ` /£
31st March,2023 97
30th September, 2023 99
You are required to give your opinion to Trower Limited on which of the above two options
to be chosen. (5 Marks)

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 2 INTERMEDIATE EXAMINATION: MAY 2023

(c) On 1stApril 2021, Eleanor Limited purchased a manufacturing Plant for ` 60 lakhs, which
has an estimated useful life of 10 years with a salvage value of ` 10 lakhs. On purchase
of the Plant, a grant of ` 20 lakhs was received from the government.
You are required to calculate the amount of depreciation as per AS-12 for the financial
year 2022-23 in the following cases:
(i) If the grant amount is deducted from the value of Plant.
(ii) If the grant is treated as deferred income.
(iii) If the grant amount is deducted from the value of Plant, but at the end of the year
2022-2023 grant is refunded to the extent of ` 4 lakhs, due to non-compliance of
certain conditions.
(iv) If the grant is treated as the promoter's contribution.
(Assume depreciation on the basis of Straight-Line Method.) (5 Marks)
(d) On 1stApril, 2022 Workhouse Limited took a loan from a Financial Institution for ` 25,00,000
for the construction of Building. The rate of interest is 12%.
In addition to above loan, the company has taken multiple borrowings as follows:
(i) 8% Debentures ` 15,00,000
(ii) 15% Term Loan ` 30,00,000
(iii) 10% Other Loans ` 18,00,000
The company has utilised the above funds in construction / purchase of the following
assets:
(i) Building ` 70,00,000
(ii) Furniture ` 22,00,000
(iii) Plant & Machinery ` 90,00,000
(iv) Factory Shed ` 43,00,000
The construction of Building, Plant & Machinery and Factory Shed was completed on 31 st
March 2023. Readymade Furniture was purchased directly from the market. The factory
was ready for production on 1 stApril 2023.
You are required to calculate the borrowing cost for both qualifying and non-qualifying
assets. (5 Marks)
Answer
(a) (i) Depreciation to be charged in the Profit & Loss Account
Particulars Amount in `
Depreciation on old Machinery 1,40,750

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 PAPER – 1 : ACCOUNTING 3

[10% on ` 56,30,000 for 3 months (01.04.2022 to 30.06.2022)]

Add: Depreciation on Machinery acquired on 01.06.2022 1,76,000
(`21,12,000 X 10% X10/12)
Add: Depreciation on Machinery after adjustment of Exchange 4,67,625
[10% of ` 56,30,000 – 9,60,000 + 15,65,000) for 9 months]
Total Depreciation to be charged in Profit & Loss A/c 7,84,375
(ii) Book value of Plant & Machinery as on 31.3.2023
Particulars Amount in `
Balance as per books on 01.04.2022 56,30,000
Add: Included in purchases on 01.06.2022 21,12,000
Add: Purchases on 30.06.2022 15,65,000 36,77,000
93,07,000
Less: Book value of Machine sold on 30.06.2022 (9,60,000)
83,47,000
Less: Depreciation on Machinery in use (7,60,375)
` (7,84,375 -24,000)
Book Value as on 31.03.2023 75,86,625
Note: The computation of depreciation and book value of Plant & Machinery can be
presented in the following alternative manner:
Particulars Book Value Period Depreciation Book Value
or Cost or as on
Acquisition 31.03.2023
Opening 46,70,000 01.04.2022 4,67,000 42,03,000
Value (56,30,000 to (46,70,000
– 9,60,000) 31.03.2023 x 10%)
Sold 9,60,000 01.04.2022 24,000 -
to (9,60,000
30.06.2022 x 10% x 3/12)
Purchases 21,12,000 01.06.2022 1,76,000 19,36,000
to (21,12,000
31.03.2023 x 10% x 10/12)
New 15,65,000 01.07.2022 1,17,375 14,47,625
Machinery to (15,65,000
31.03.2023 x 10% x 9/12)
Total 7,84,375 75,86,625

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 4 INTERMEDIATE EXAMINATION: MAY 2023

(iii) Profit/Loss on Exchange of Machinery

Particulars Amount in `
Balance as per books on 01.04.2022 9,60,000
Less: Depreciation for 3 months (` 9,60,000 x 10 /100 x 3 / 12) (24,000)
W.D.V. as on 30.06.2022 9,36,000
Less: Exchange value (8,25,000)
Loss on Exchange of Machinery 1,11,000
(b) Option (i) Pay immediately with Cash discount of 1% on the payable
`
Total amount payable as on 31.3.2023 (50,000 x ` 97) 48,50,000
Less: Cash discount (48,500)
48,01,500
Add: Borrowing cost @ 15% p.a. for 6 months 3,60,112.50
If payment made immediate 51,61,612.50
Option (ii) Pay after 6 months with interest @ 5% p.a. on the payable
`
Total amount payable as on 31.3.2023 (50,000 x ` 99) 49,50,000
Interest for 6 months @ 5% 1,23,750
If payment made after 6 months 50,73,750
Thus, Option (ii) is beneficial to Trower Limited as the Rupee outflow will be lower by
` (51,61,612 – 50,73,750) = ` 87,862 in option (ii).
Note: The above answer be presented in the alternative manner given as below:
Option (i) Pay immediately with Cash discount of 1% on the payable

Total amount payable on 31.3.2023 50,000

Less: Cash discount (50,000 x 1 / 100) (500)
49,500
49,500 x ` 97 48,01,500
Add: Borrowing cost @ 15% p.a. for 6 months 3,60,112.50
If payment made immediate ` 51,61,612.50

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 PAPER – 1 : ACCOUNTING 5

Option (ii) Pay after 6 months with interest @ 5% p.a. on the payable
`
Total amount payable on 31.3.2023 50,000
Interest for 6 months @ 5% (50,000 x 5 / 100 x 6 / 12) 1,250
51,250
If payment made after 6 months (51,250 x 99) 50,73,750
Thus, Option (ii) is beneficial to Trower Limited as the Rupee outflow will be lower by
` (51,61,612 – 50,73,750) = ` 87,862 in option (ii).
(c) Calculation of depreciation as per AS 12 for the financial year 2022-23:
(i) If the grant amount is deducted from the value of Plant, then the amount of
deprecation will be ` 3,00,000 p.a. (` 60,00,000 - ` 10,00,000 - ` 20,00,000) / 10
year.
(ii) If the grant is treated as deferred income, then amount of depreciation will be
` 5,00,000 p.a. (` 60,00,000 - ` 10,00,000) / 10 year.
(iii) If the grant amount is deducted from the value of plant, but at the end of the year
2022-23 grant is refunded to the extent of ` 4 lakh then the amount of depreciation
will be ` 3,00,000 p.a. (` 60,00,000 - ` 10,00,000 - ` 20,00,000) /10 year for year
2021-22 and for the year 2022-23 Depreciation will be ` 3,00,000 calculated as
follows, (`60,00,000 - ` 10,00,000 - ` 20,00,000– ` 3,00,000) / 10 years.
Note: It is assumed that the depreciation for the year has been charged on the book
value on the plant before making adjustment for grant. Alternatively, if it is considered
otherwise then the depreciation will be charged after making adjustment for grant.
In that case depreciation for the year 2022-23 will be as ` 3,44,444 calculated as
follows, (` 60,00,000 - `10,00,000 - ` 20,00,000 + 4,00,000– ` 3,00,000 / 9 years
(iv) If the grant is treated as promoter’s contribution, then the amount of depreciation will
be ` 5,00,000 p.a. (` 60,00,000 -10,00,000) /10 year.
NOTE: The answer can be presented in the following alternative manner:
(i) (ii) (iii) (iv)
Date Particulars Grant Value Grant Grant Grant is
deducted treated as Refunded treated as
from Plant Deferred Promoter’s
Income Contribution
01.04.2021 Cost of Plant 60,00,000 60,00,000 60,00,000 60,00,000
Less: Salvage 10,00,000 10,00,000 10,00,000 10,00,000
50,00,000 50,00,000 50,00,000 50,00,000

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 6 INTERMEDIATE EXAMINATION: MAY 2023

01.04.2021 Less: Grant 20,00,000 - 20,00,000 -

30,00,000 50,00,000 30,00,000 50,00,000
Useful Life 10 10 10 10
(years)
31.03.2022 Depreciation
FY 2021-22 3,00,000 5,00,000 3,00,000 5,00,000
1.4.2022 Cost of Plant 60,00,000
Less: Salvage 10,00,000
50,00,000
Less: Grant 20,00,000
Less: 30,00,000
Depreciation 3,00,000
FY 2022-23
27,00,000
Book value at
the time of 4,00,000
refund of
grant i.e. at
the end of
period
Add: Grant 31,00,000
Refundable at
end of 22-23
Book value
available for
remaining 8
years.
Note:
It is assumed that the depreciation for the year has been charged on the book value on the
plant before making adjustment for grant. Alternatively, if it is considered otherwise then
the depreciation will be charged after making adjustment for grant. In that case
depreciation for the year 2022-23 will be as:
Cost of Plant 60,00,000
Less: Salvage 10,00,000
50,00,000
20,00,000
Less: Grant 30,00,000
4,00,000
Add: Grant Refundable

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 PAPER – 1 : ACCOUNTING 7

34,00,000
Less: Depreciation for 2021-22 3,00,000
31,00,000
Useful Life (years) 9
Depreciation for 2022-23 3,44,444
(d) Interest to be Capitalized (on qualifying asset)
Particulars Computation `
i. On specific Borrowings 25,00,000x12% 3,00,000
ii. On non-specific borrowings (W.N.1) 6,67,500
iii. Amount of interest to be Capitalised (i+ii) 9,67,500
Interest transferred to P&L (on non-qualifying asset)
Particulars Computation `
i. On non-specific Borrowings (W.N.1) 82,500
Working note:
1. Treatment of interest under AS 16 on non-specific borrowings
Particulars Qualifying # Computation Interest- Interest-
asset Capitalized charged
to P&L
A/c
i. Building Yes 45,00,000/2,00,00,000 1,68,750 -
x 63,00,000
x 11.9048%
ii. Furniture No 22,00,000/2,00,00,000 - 82,500
x 63,00,000
x 11.9048%
iii. Plant & Yes 90,00,000/2,00,00,000 3,37,500 -
Machinery x 63,00,000
x 11.9048%
iv. Factory shed Yes 43,00,000/2,00,00,000 1,61,250 -
x 63,00,000
x 11.9048%
Total 6,67,500 82,500
NOTE: Alternative manner of presentation for Treatment of interest under AS 16 on
non-specific borrowings:

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 8 INTERMEDIATE EXAMINATION: MAY 2023

Particulars Qualifying Expenses Share in Interest- Interest-

asset Incurred borrowings Capitalized charged
` ` ` to P&L
A/c `
i. Building Yes 45,00,000 7,50,000 x 1,68,750 -
45/200
ii. Furniture No 22,00,000 7,50,000 x - 82,500
22/200
iii. Plant & Yes 90,00,000 7,50,000 x 90 3,37,500 -
Machinery /200
iv. Factory Yes 43,00,000 7,50,000 x 43 / 1,61,250 -
shed 200
Total 2,00,00,000 6,67,500 82,500
2. Weighted Average interest rate for non-specific borrowings
Particulars Amount of loan Rate of interest Amount of interest
(a) (b) (c) = (a) x (b)
Debentures 15,00,000 8% 1,20,000
Term loan 30,00,000 15% 4,50,000
Other loans 18,00,000 10% 1,80,000
63,00,000 7,50,000
# Weighted Average Rate of Interest
= 7,50,000 / 63,00,000 x 100 = 11.9048%
Question 2
(a) Montrek Limited purchased 2 Machines costing ` 2,80,000 each from M. K. Traders on
1st April, 2021 on hire purchase basis.
Terms of payments for both the Machines together are as follows:
DATE Particulars (` )
01-04-2021 Down Payment 1,40,000
30-09-2021 1st Instalment 1,00,000
31-03-2022 2nd Instalment 95,000
30-09-2022 3rd Instalment 85,000
31-03-2023 4th Instalment 70,000
30-09-2023 5th Instalment 65,000
31-03-2024 6th Instalment 59,700

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The following information was provided:

(i) M. K. Traders charges interest @ 8% p.a. payable half-yearly.
(ii) Instalment payments are towards principal repayment and interest.
(iii) Montrek Limited writes off depreciation @ 20% p.a. on the diminishing balance
method.
(iv) Montrek Limited has paid 3 half-yearly instalments but could not pay 4 th instalment
due on 31 st March, 2023.
(v) M. K. Traders re-possessed one of the Machines on 31 st March, 2023 adjusting its
value against the amount due.
(vi) Re-possession was done on the basis of 25% p.a. depreciation on diminishing
balance method, assuming that the balance due will be paid off in the next year.
You are required to prepare following accounts in the books of Montrek Limited up to 31 st
March, 2023:
(i) Machinery Account;
(ii) M. K. Traders Account (10 Marks)
(b) The following information is given for Mr. Atwood for the year ended 31.03.2023:
01.04.2022 Mr. Atwood has 3,000 equity shares in Sun Limited at a book value of
` 3,30,000 (nominal value ` 100 each.)
01.07.2022 Purchased 1,500 equity shares in Sun Limited for ` 1,38,600.
01.08.2022 Purchased 5,000.9% Bonds at ` 97 cum-interest (face value ` 100). The
due dates of interest are 1 st September and 1st March.
02.10.2022 Dividend declared on equity shares and paid by Sun Limited for the year
2021- 2022 @ 10%.
15.10.2022 Sun Limited made a bonus issue of two equity shares for every five
shares held.
01.01.2023 1,000 equity shares in Sun Limited sold @ ` 115 per share.
31.03.2023 Sold 4,000,9% Bonds @ ` 99 ex-interest
• The market price of Equity Shares of Sun Limited is ` 125 each and Bonds ` 98 each
on 31 st March 2023.
• Interest on bonds was received on due dates.
You are required to prepare Investment Account in the books of Mr. Atwood for the year
ended 31 stMarch 2023, assuming that the investments are valued at the average cost or
market value, whichever is lower. (Round off to nearest Rupee) (10 Marks)

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 10 INTERMEDIATE EXAMINATION: MAY 2023

Answer
(a) In the books of Montrek
Machinery Account
Date Particulars ` Date Particulars `
1.4.2021 To M.K. Traders 5,60,000 31.3.2022 By Depreciation A/c 1,12,000
A/c
Balance c/d 4,48,000
5,60,000 5,60,000
1.4.2022 To Balance b/d 4,48,000 31.3.2023 By Depreciation A/c 89,600
By M.K. Traders A/c 1,57,500
(Value of 1 Machinery
taken over after
depreciation for 2 years @
25% p.a.)
By Loss transferred to Profit 21,700
and Loss a/c on surrender
(Bal. fig) or (1,79,200 -
1,57,500)
By Balance c/d 1,79,200
4,48,000 4,48,000

M.K. Traders Account

Date Particulars ` Date Particulars `
1.4.2021 To Bank (down 1,40,000 1.4.2021 By Machinery a/c 5,60,000
payment)
30.9.2021 To Bank (1 st 1,00,000 30.9.2021 By Interest a/c 16,800
Instalment)
31.3.2022 To Bank (2 nd 95,000 31.3.2022 By Interest a/c 13,472
Instalment)
31.3.2022 To Balance c/d 2,55,272
5,90,272 5,90,272
30.9.2022 To Bank (3rd 85,000 1.4.2022 By Balance b/d 2,55,272
Instalment)
31.3.2023 To Machinery a/c 1,57,500 30.9.2022 By Interest a/c 10,211
31.3.2023 To Balance c/d 30,202 31.3.2023 By Interest a/c 7,219
(b.f.)
2,72,702 2,72,702

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Working Notes:
1. Analysis of payment to M.K. Traders towards principal and interest Component
Date Opening Total Interest ` Principal ` Closing
Balance ` Instalment Balance `
01.04.2021 5,60,000 1,40,000 - 1,40,000 4,20,000
30.09.2021 4,20,000 1,00,000 16,800 83,200 3,36,800
31.03.2022 3,36,800 95,000 13,472 81,528 2,55,272
30.09.2022 2,55,272 85,000 10,211 74,789 1,80,483
31.03.2023 1,80,483 70,000 7,219 62,781 1,17,702
2. Calculation of agreed value of Machine surrendered
Date Particulars Value as per Value as per
Montrek Limited ` M.K. Traders `
01.04.2021 Cost of one Machine 2,80,000 2,80,000
31.03.2022 Less: Depreciation 56,000 70,000
31.03.2022 Balance WDV 2,24,000 2,10,000
31.03.2023 Less: Depreciation 44,800 52,500
31.03.2023 Balance WDV 1,79,200 1,57,500
3. Loss on surrender / repossession of oneMachine as on 31.03.2023.
WDV Value as per Montrek Limited [A] ` 1,79,200
Agreed value as per M.K. Traders [B] ` 1,57,500
Loss on surrender / repossession [A-B] ` 21,700
(b) In the books of Atwood
Investment in Equity Shares of Sun Ltd. Account
Date Particulars No. Dividend Amount Date Particulars No. Divide
nd Amount
(` ) (` ) (` ) (` )
1.04.22 To Balance 3,000 3,30,000 2.10.22 By Bank 30,000 15,000
b/d A/c (W.N.
5)
1.07.22 To Bank A/c 1,500 1,38,600 1.1.23 By Bank 1,000 1,15,000
A/c
15.10.22 To Bonus 1,800 31.3.23 By Balance 5,300 3,81,600
Issue
1.01.23 To Profit & 43,000 c/d (W.N.7)
Loss A/c
(W.N. 6)

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 12 INTERMEDIATE EXAMINATION: MAY 2023

31.3.23 To Profit & 30,000

Loss A/c
6,300 30,000 5,11,600 6,300 30,000 5,11,600

9% Bonds Account [Interest Payable: 1st September & 1st March]

ate Particulars Nominal Interest Cost Date Particulars Nominal Interest Cost
Value (` ) (` ) (` ) Value (` ) (` ) (` )
1.8.22 To Bank A/c 5,00,000 18,750 4,66,250 1.9.22 By Bank A/c - 22,500 -
(W.N.1) (5,00,000 x
9% x 6/12)
31.3.23 To Profit & 23,000 1.3.23 By Bank A/c - 22,500 -
Loss A/c
(W.N 3)
31.3.23 By Bank A/c
(W.N 2) 4,00,000 3,000 3,96,000
31.3.23 To Profit & 30,000 31.3.23 By Balance
Loss A/c c/d (W.N.4) 1,00,000 750 93,250
5,00,000 48,750 4,89,250 5,00,000 48,750 4,89,250

Working Notes:
1. Cost of Bond purchased on 1 st August, 2022
5,000, 9% bonds were purchased @ ` 97 cum-interest. Total amount paid 5,000
bonds x ` 97 = 4,85,000 which includes accrued interest for 5 months, i.e., 1 st March,
2022 to 31 st July, 2022. Accrued interest will be ` 5,00,000 x 9/100x 5/12 = ` 18,750.
Therefore, cost of Bond purchased = ` 4,85,000 – 18,750 = ` 4,66,250.
2. Sale of bonds on 31 st March, 2023
4,000 bonds were sold@ ` 99 ex-interest, i.e., Total amount received = 4,000 x 99 +
accrued interest for 1 month = ` 3,96,000 + ` 3,000 (4,00,000 x 9/100 x 1/12)
3. Profit on sale of bonds `
Sale value = 3,96,000
Cost of 4,00,000 9% bonds = 4,66,250/5,000x 4,000 = 3,73,000
Profit = 23,000
4. Value of bonds on 31.3.2023
Lower of:
Cost of bonds on 31.3.2023 will be ` 4,66,250/ 5,000 x 1,000 = ` 93,250.
Market Value on 31.3.2023 will be ` 1,000 X 98 = 98,000
Value of bonds on 31.3.2023 = ` 93,250
Interest accrued on bonds on 31.3.2023 = 1,00,000 x 9% x 1/12 = ` 750

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 PAPER – 1 : ACCOUNTING 13

5. Dividend on equity shares for 2021-22

Post acquisition dividend = 3,00,000 x 10% = ` 30,000 transferred to Profit & Loss
account
Pre-acquisition dividend = 1,50,000 X 10% = ` 15,000 credited to investment A/c
6. Profit on sale of equity shares `
Sale value = 1,15,000
Cost of shares = 4,53,600 / 6,300 x 1,000 = 72,000
Profit = 43,000
(Average cost method being followed)
7. Value of equity shares at end of year
Lower of:
Cost of shares on 31.3.2023 will be ` 4,53,600 / 6,300 x 5,300 = ` 3,81,600
Market Value on 31.3.2023 will be ` 5,300 x 125 = 6,62,500
Value of shares = ` 3,81,600
Question 3
(a) Pearsons Enterprises, a manufacturer of Bed Sheets, has three Departments A, B and C.
Department A processes Gray Cloth and transfers 100% production to Department B for
further processing. Department B does Dyeing and Printing of Cloth received from
Department A and transfers 100% production to Department further processing.
Department C manufactures Bed Sheets from cloth received from Department B and sells
the same into the market.
The following information is provided:
Particulars Department A Department B Department C
(` ) (` ) (` )
Opening Stock 3,50,000 2,20,000 5,80,000
Consumption of Materials 7,20,000 7,60,000 -
Wages 1,60,000 1,80,000 3,20,000
Closing Stock 4,30,000 2,80,000 10,20,000
Sales - - 26,40,000
No. of Employees 18 15 12
Floor space occupied by each 10,000 Sq. ft. 8,000 sq. ft. 6,000 sq. ft.
department
Value of machinery used (at 12,00,000 15,00,000 6,00,000
cost)

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 14 INTERMEDIATE EXAMINATION: MAY 2023

Additional Information:
(i) Other Expenses were:
- Salaries to employees ` 1,80,000
- Rent Paid ` 2,88,000
- Depreciation on Machinery ` 2,42,000
- Interest on Loan ` 1,02,000
(ii) Stock of Department A is transferred to Department B at cost plus 40% margin.
(iii) Stock of Department B is transferred to Department C at cost plus 25% margin.
(iv) Stock of each department is valued at cost to the respective department.
(v) Opening and closing stock of Department B and C comprises of 100% stock
transferred from Department A and B respectively.
You are required to prepare Departmental-
(i) Trading Account;
(ii) Profit and Loss Account; and
(iii) General Profit & Loss Account (10 Marks)
(b) Mr. Takewood keeps his books on single entry system. The following information of
Mr. Takewood is given:
(i) Balances as on 1 st April, 2022:
Cash in Hand ` 4,000 Stock ` 35,000
Cash in Bank ` 28000 Fixed Assets ` 20000
Sundry Creditors ` 15,000 Sundry Debtors ` 23,000
Capital Account ` 95,000
(ii) During the year 2022-2023 Sundry Creditors were paid ` 26,000 in cash and
` 1,55.000 by cheque, and received ` 55,000 in cash and ` 1,90,000 by cheque from
Sundry Debtors.
(iii) All Sales and Purchases were on credit.
(iv) Balances as on 31 st March, 2023 were, Sundry Debtors ` 27,000 and Sundry
Creditors ` 35,000.
(v) All expenses which are debited to profit and loss accounts were disbursed by cheques
except petty expenses amounting to ` 7,500 paid in cash.
(vi) Outstanding expenses as on 31 st March 2023 were ` 2,000,

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 PAPER – 1 : ACCOUNTING 15

(vii) Net Profit for the year was ` 41,000 after allowing 10% depreciation on fixed assets.
(viii) Closing Stock was valued at ` 75,000.
(ix) His Drawings during the year were ` 10,000 in cash and ` 14,000 by cheques.
You are required to prepare Profit and Loss Account for the year ended 31 st March 2023
and Balance Sheet as at that date. (10 Marks)
Answer
(a) Pearsons Enterprises
Departmental Trading and Profit and Loss Account
A B C Total A B C Total
` ` ` ` ` ` ` `
To Opening stock 3,50,000 2,20,000 5,80,000 11,50,000 By Sales - - 26,40,000 26,40,000
To Material 7,20,000 7,60,000 - 14,80,000 By Inter-depart-
consumed mental
To Wages 1,60,000 1,80,000 3,20,000 6,60,000 transfer 11,20,000 25,00,000 - 36,20,000
To Inter-depart- - 11,20,000 25,00,000 36,20,000 By Closing 4,30,000 2,80,000 10,20,000 17,30,000
mental stock
transfer
To Gross profit 3,20,000 5,00,000 2,60,000 10,80,000
15,50,000 27,80,000 36,60,000 79,90,000 15,50,000 27,80,000 36,60,000 79,90,000
To Salaries 72,000 60,000 48,000 1,80,000 By Gross profit 3,20,000 5,00,000 2,60,000 10,80,000
b/d
To Rent 1,20,000 96,000 72,000 2,88,000
To Depreciation 88,000 1,10,000 44,000 2,42,000
To Net profit 40,000 2,34,000 96,000 3,70,000 _____ _____ _____ _____
3,20,000 5,00,000 2,60,000 10,80,000 3,20,000 5,00,000 2,60,000 10,80,000

General Profit & Loss account

` `
To Interest on loan 1,02,000 By Stock reserve on Opening 1,78,857
Stock (W.N.1)
To Stock reserve on Closing 2,84,000
Stock (W.N.2)
To Balance transferred to P&L 1,62,857 By Net profit 3,70,000
A/c
5,48,857 5,48,857

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 16 INTERMEDIATE EXAMINATION: MAY 2023

Working Note:
1. Calculation of Stock Reserve on Opening Stock
Dept. – B `
Opening Stock 2,20,000
Stock reserve 2,20,000 x 40 / 140 = ` 62,857 (i)
Dept. – C `
Opening Stock 5,80,000
Stock reserve 5,80,000 x 25/ 125 = ` 1,16,000 (ii)
Total Stock reserve ` 1,78,857 (i+ii)
2. Calculation of Stock Reserve on Closing Stock
Dept. – B `
Closing Stock 2,80,000
Stock reserve 2,80,000 x 40 / 140 = ` 80,000 (i)
Dept. – C `
Closing Stock 10,20,000
Stock reserve 10,20,000 x 25/ 125 = ` 2,04,000 (ii)
Total Stock reserve ` 2,84,000 (i )+ (ii)
Note:
Stock Reserve may be shown as net amount of ` 1,05,143 in debit side of General Profit
and Loss Account as follows:
Stock Reserve on Closing Stock = ` 2,84,000
Less: Stock Reserve on Opening Stock = ` 1,78,857
` 1,05,143
(b) Trading & P&L A/c of Mr. Takewood
for the year ending 31.3.2023
Particulars ` Particulars `
To Opening Stock 35,000 By Sales 2,49,000
To Purchases 2,01,000 By Closing Stock 75,000
To Gross Profit c/d 88,000
3,24,000 3,24,000
To Expenses 37,500 By Gross Profit b/d 88,000

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 PAPER – 1 : ACCOUNTING 17

To Petty Expenses 7,500

To Depreciation 2,000
To Net Profit 41,000 ______
88,000 88,000
Balance Sheet as on 31.3.2023
Liabilities ` ` Assets `
Capital A/c Fixed Asset 18,000
Opening Capital 95,000 Stock 75,000
Add Net Profit 41,000 Sundry Debtors 27,000
Less: Drawings (24,000) 1,12,000 Cash at Bank 13,500
Sundry Creditors 35,000 Cash in Hand 15,500
Expenses Payable 2,000
1,49,000 1,49,000
Working notes:
1. Sundry Debtors A/c
Particulars ` Particulars `
To Bal b/d 23,000 By Cash 55,000
To Sales (credit)(b.f.) 2,49,000 By Bank 1,90,000
By Bal c/d 27,000
2,72,000 2,72,000
2. Sundry Creditors A/c
Particulars ` Particulars `
To Cash 26,000 By Bal B/d 15,000
To Bank 1,55,000 By Purchases (credit) (b.f.) 2,01,000
To Bal c/d 35,000
2,16,000 2,16,000
3. Cash A/c
Particulars ` Particulars `
To Balance b/d 4,000 By Sundry Creditors 26,000
To Sundry Debtors 55,000 By Petty expenses 7,500

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 18 INTERMEDIATE EXAMINATION: MAY 2023

By Drawings 10,000
By Balance c/d 15,500
59,000 59,000
4. Bank A/c
Particulars ` Particulars `
To Balance b/d 28,000 By Sundry Creditors 1,55,000
To Sundry Debtors 1,90,000 By Expenses 35,500
By Drawings 14,000
By Balance c/d 13,500
2,18,000 2,18,000
Question 4
(a) The following balances are extracted from the books of Travese Limited as on 31 st March
2023:
Particulars Amount (`)
Debit Credit
7% Debentures 48,45,000
Plant & Machinery (at cost) 37,43,400
Trade Receivable 35,70,000
Land 97,37,000
Debenture Interest 3,39,150
Bank Interest 13,260
Sales 47,22,600
Transfer Fees 38,250
Discount received 66,300
Purchases 28,86,600
Inventories 1.04.2022 4,97,250
Factory Expenses 2,58,060
Rates, Taxes and Insurance 65,025
Repairs 1,49,685
Sundry Expenses 1,27,500
Selling Expenses 26,520
Directors Fees 38,250

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 PAPER – 1 : ACCOUNTING 19

Interest on Investment for the year 2022-2023 55,000

Provision for depreciation 5,96,700
Miscellaneous receipts 1,42,800
Additional information:
(i) Closing inventory on 31.03.2023 is ` 4,76,850,
(ii) Miscellaneous receipts represent cash received from the sale of the Plant on
01.04.2022. The cost of the Plant was ` 1,65,750 and the accumulated depreciation
thereon is ` 24865.
(iii) The Land is re-valued at 1,08,63,000.
(iv) Depreciation is to be provided on Plant & Machinery at 10% p.a. on cost.
(v) Make a provision for income tax @ 25%.
(vi) The Board of Directors declared a dividend of 10% on Equity shares on 4 th April, 2023.
You are required to prepare a Statement of Profit and Loss as per Schedule III of the
Companies Act, 2013 for the year ended 31.03.2023. (Ignore previous year figures)
(10 Marks)
(b) The summarized Balance Sheets of Flora Limited for the year ended 31 st March, 2022 and
31st March, 2023 are as below:
Assts 31/03/2023 31/03/2022
(` ) (` )
Goodwill 15,000 28,000
Land 5,75,000 6,00,000
Furniture and Fixtures 48,000 44,000
Vehicles 22,000 28,000
Office Equipment 21,000 -
Long-term Investments 60,000 1,10,000
Stock-in-hand 96,000 88,000
Bills Receivables 18,150 14,500
Trade Receivables 46,000 52,000
Cash and Bank Balances 1,29,850 34,500
Total 10,31,000 9,99,000

Liabilities 31/03/2023 31/03/2022

(` ) (` )
Equity Shares Capital 6,80,000 5,00,000

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 20 INTERMEDIATE EXAMINATION: MAY 2023

General Reserves 90,000 60,000

Profit and Loss Account 93,000 52,000
Capital Reserve 75,000 -
8% Debentures of ` 100 each - 3,00,000
Loan from Mr. Andrew - 15,000
Bills Payables 11,000 13,000
Trade Payables 49,000 45,000
Creditors for Equipment 10,500 -
Outstanding Expenses 4,500 3,000
Provision for Taxation 18,000 11,000
Total 10,31,000 9,99,000

Additional Information:
(i) On 1st April, 2022, one of the vehicles was sold for ` 3,000. No new purchases were
made during the year.
(ii) A part of the total land was sold for ` 1,25,000 (Cost ` 1,00,000) and the balance
land was revalued. Capital reserve consists of profit on revaluation of balance land.
No new purchases were made during the year.
(iii) Depreciation provided during the year-
• Furniture and Fixtures ` 5,000
• Vehicles ` 2,200
(iv) Interim dividend of 5,000 was paid during the year.
(v) Provision for taxation for the year 2022-2023 was ` 16,000.
(vi) 8% Debentures were redeemed at par after half year interest payment on 30 th
September, 2022.
(vii) Part of the long-term investments were sold at a profit of 8,000.
(viii) Interest income received during the year on long-term investment was 6,500.
You are required to prepare Cash Flow Statement from Operating Activities for the year
ended 31 st March, 2023 using indirect method. (All workings should form part of the
answer) (10 Marks)

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 PAPER – 1 : ACCOUNTING 21

Answer
(a) Statement of Profit and Loss of Travese Limited.
for the year ended 31 st March, 2023
Particulars Notes Amount
I. Revenue from operations 1 47,22,600
II. Other income 2 1,61,465
III. Total Income (I + II) 48,84,065
IV. Expenses:
Purchases of Inventory-in-Trade 28,86,600
Changes in inventories of finished goods, work-in- 3 20,400
progress and Inventory-in-Trade
Finance costs 4 3,52,410
Depreciation and amortization expenses 5 3,57,765
Other expenses 6 6,65,040
Total expenses 42,82,215
V. Profit (Loss) for the period (III - IV) before tax 6,01,850
VI Provision for tax (1,50,463)
VII Profit for the period 4,51,387
Notes to accounts
`
1 Revenue from operations
Sale 47,22,600
2 Other Income
Transfer fees 38,250
Discount received 66,300
Interest on Investment 55,000
Profit on sale of plant 1,915
Total 1,61,465
3 Changes in inventories of finished goods, work-in-
progress and Inventory-in-Trade
Opening Inventory 4,97,250
Less: Closing Inventory (4,76,850) 20,400
Total 20,400

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 22 INTERMEDIATE EXAMINATION: MAY 2023

4 Finance costs
Interest on Debentures 3,39,150
Bank Interest 13,260
Total 3,52,410
5 Depreciation and Amortization expenses
Depreciation on Plant & Machinery 3,57,765
(10% x 37,43,400 - 1,65,750)
6 Other expenses
Factory expense 2,58,060
Rent, Taxes and Insurance 65,025
Repairs 1,49,685
Sundry expenses 1,27,500
Selling expenses 26,520
Director’s fees 38,250
Total 6,65,040
Note:
The final dividend will not be recognized as a liability at the balance sheet date (even if it
is declared after reporting date but before approval of financial statements) as per
accounting standards. Hence, it is not recognized in the financial statement for the year
ending 31 st March 2023. Such dividend will be disclosed in notes only.
(b) Cash Flow Statement of Flora Limited from Operating Activities
For the year ended 31st March, 2023
` `
Net profit before taxation (W.N.1) 92,000
Adjustment: Depreciation on Furniture & Fixtures 5,000
Depreciation on Vehicles 2,200
Profit on sale of land (` 125000 - ` 100000) (25,000)
Loss on sale (Vehicle) 800
Profit on sale of long-term investments (8,000)
Interest received (6,500)
Interest on debentures 12,000
Goodwill written off 13,000 (6,500)
Operating profit before working capital changes 85,500

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 PAPER – 1 : ACCOUNTING 23

Increase in Stock in Hand (8,000)

Increase in Bills Receivables (3,650)
Decrease in Trade Receivables 6,000
Decrease in Bills payable (2,000)
Increase in Trade Payables 4,000
Increase in outstanding expenses 1,500 (2,150)
Cash generated from Operations 83,350
Less: Income taxes paid 9,000
Cash flow from Operating activities 74,350
Alternative presentation:
Cash Flow Statement of Flora Limited from Operating Activities
For the year ended 31st March, 2023
`
Net profit before taxation (W.N. 1) 92,000
Adjustment: Depreciation on Furniture & fixtures 5,000
Depreciation on Vehicles 2,200
Profit on sale of land (25,000)
Loss on sale (Vehicle) 800
Profit on sale of long- term investments (8,000)
Interest received (6,500)
Interest on debentures 12,000
Goodwill written off 13,000 (6,500)
Operating profit before working capital changes 85,500
Increase in inventory (8,000)
Decrease in Trade receivables* 2,350
Increase in Trade payables** 2,000
Increase in outstanding expenses 1,500 (2,150)
Cash generated from Operations 83,350
Less: Income taxes paid 9,000
Cash flow from Operating activities 74,350
*[(18,150 +46,000) - (14,500 + 52,000)]
** [(11,000 + 49,000) - (13,000+45,000)]

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 24 INTERMEDIATE EXAMINATION: MAY 2023

Working Notes:
1. Net Profit before Taxation
Increases in Profit and Loss A/c (93,000-52,000) 41,000
Increases in General Reserve (90,000-60,000) 30,000
Interim dividend Paid 5,000
Transfer – provision for Taxation 16,000
Increase in retained earnings (Net Profit before Taxation) 92,000
2. Provision for Taxation Account
` `
To Bank (Balancing figure) 9,000 By Balance b/d 11,000
To Balance c/d 18,000 By Profit and loss account 16,000
27,000 27,000

3. Vehicles Account
Particulars (`)
Opening Balance 28,000
Less: Depreciation (2,200)
Less: Closing Balance (22,000)
Book value of vehicle sold 3,800
Less: Sale Value (3,000)
Loss on sale of Vehicle 800

Question 5
(a) Wringler Limited took over the running business of FIG Enterprises with effect from 1 st April
2022. However, due to some procedural delay, the company could be incorporated on 1 st
August 2022.
The following information for the year ended 31.03.2023 is provided:
Particulars Amount (`)
Sales 1,19,70,000
Interest received on Investment 60,000
Profit on sale of investment 40,000
Cost of goods sold 64,40,000

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 PAPER – 1 : ACCOUNTING 25

Expenses:
Printing & Stationery 87,000
Sales Manager’s Salary 81,000
Donation 41,000
Rent 1,35,000
Bad debts 67,000
Underwriting Commission 56,000
Depreciation 70,200
Interest Paid on Debentures 8,900
Audit Fees 15,000
Sundry office expenses 55,500
Interest on Loan 62,500
Additional information:
(1) Details of Sales during the year 2022-23 are as follows:
➢ From April 2022 to June 2022 average monthly Sales was ` 8,40,000.
➢ From July 2022 to January 2023 average monthly Sales was ` 9,00,000.
➢ From February 2023 to March 2023 average monthly Sales was ` 15,75,000.
(2) There was a loan of ` 15,00,000 at an interest rate of 10% p.a.
The Loan was repaid on 1sttSeptember, 2022.
(3) Extra space was occupied from 1 st June 2022 to 31 st August 2022 for which additional
rent of 5,000 per month was incurred.
(4) Audit fee pertains to Wringler Limited.
(5) Bad debts recovered amounting to ` 17,000 for a sale made in November have been
deducted from bad debts mentioned above.
(6) All investments were sold in June 2022.
(7) Donation is given to a political party by the company.
(8) The salary of the Sales Manager was increased by ` 5,000 per month from 1 st July
2022.
You are required to:
(i) Calculate the time ratio and sales ratio.

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 26 INTERMEDIATE EXAMINATION: MAY 2023

(ii) Prepare a Statement ascertaining pre-incorporation and post-incorporation

profits/losses for the year ending 31.03.2023,
(iii) Explain how these would appear in the Balance Sheet of Wringler Limited.
(10 Marks)
(b) On 24th July, 2022 fire occurred in the premises of Welsh Enterprises. Most of the stock
was destroyed in fire, cost of stock salvaged being ` 51,200. In addition, some stock was
salvaged in a damaged condition and its value in that condition was agreed at ` 30,540.
The following information was available from the books of account:
(i) Closing Stock as on 31.03.2022 was valued at ` 1,83,500
(ii) Purchases from 01.04.2022 to 24.07.2022 amounted to ` 31,12,000, commission of
2% was paid on purchases.
(iii) Sales from 01.04.2022 to 24.07.2022 amounted to ` 37,54,000.
(iv) On the basis of the accounts of Welsh Enterprises for the past three years, it appears
it has earned a Gross Profit of 20% on sales.
(v) Welsh Enterprises has insured its stock for ` 3,00,000 which is subject to average
clause.
You are required to compute the amount of claim for loss of stock. (5 Marks)
(c) Artis Limited has a branch at Seattle USA. Its Trial Balance as on 31 thDecember 2022 is
as follows:
Dr. in US $ Cr. In US $
Stock as on 01.01.2022 22,000
Purchases 1,00,000
Sales 1,30,500
Goods from H.O. 30,000
Salaries 4,000
Head Office A/c. 27,000
Sundry Debtors 2,200
Sundry Creditors 1,500
Cash at Bank & Hand 800
Total 1,59,000 1,59,000
The following information is given:
(i) Salaries outstanding are $ 500.
(ii) The Head Office sent goods to Branch for ` 24,00,000.

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 PAPER – 1 : ACCOUNTING 27

(iii) The Head Office shows an amount of ` 21,90,000 due from Branch.
The exchange rates were as below:
▪ On 1st January 2022 -` 79 to 1$
▪ On 31st December 2022-` 83 to 1 $
▪ Average rate during the year was ` 79.50 to 1 $
You are required to prepare the Seattle Branch Trial Balance incorporating adj ustments
given above, converting dollars into rupees. (5 Marks)
Answer
(a) (i) Calculation of Time Ratio
1st April 2022 to 31 st July 2022= 4 months
1st August 2022 to 31st March 2023= 8 months
4 Months: 8 Months i.e., 4 : 8 or 1 : 2
Calculation of Sales Ratio
Sales from April 2022 to June 2022 (3 months) = ` 8,40,000 pm
Sales from July 2022 to Jan 2023 (7 months) = ` 9,00,000 pm
Sales from Feb 2023 to March 2023 (2 months) = ` 15,75,000 pm
Therefore, sales from April 2022 to July 2022 = ` 34,20,000
Sales from 1st August 2022 to 31st March 2023 = ` 85,50,000
Sales ratio will be 34,20,000: 85,50,000 i.e., 1 : 2.5 or 2 : 5
(ii) Statement showing the calculation of Profits for the pre-incorporation and post-
incorporation periods ` `
Ratio Total Pre- Post-
Incorporation Incorporation
Sales 1:2.5 1,19,70,000 34,20,000 85,50,000
Interest on Investments Pre 60,000 60,000
Bad debts recovered Post 17,000 - 17,000
Profit on sale of Pre 40,000 40,000 -
investment
(i) 1,20,87,000 35,20,000 85,67,000
Cost of goods sold 1:2.5 64,40,000 18,40,000 46,00,000
Donation Post 41,000 - 41,000
Sundry office expenses 4:8 55,500 18,500 37,000

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 28 INTERMEDIATE EXAMINATION: MAY 2023

Printing & Stationary 4:8 87,000 29,000 58,000

Sales Manager Salary W.N.1 81,000 17,000 64,000
Interest on Debentures Post 8,900 - 8,900
Rent W.N.2 Actual 1,35,000 50,000 85,000
Bad Debts (67,000 + 1:2.5 84,000 24,000 60,000
17,000)
Underwriting Post 56,000 - 56,000
commission
Audit fees Post 15,000 - 15,000
Depreciation Actual 70,200 23,400 46,800
Interest on Loan W.N. 3 62,500 50,000 12,500
(ii) 71,36,100 20,51,900 50,84,200
Net Profit [(i) – (ii)] 49,50,900 14,68,100 34,82,800
(iii) Such profit/ loss is disclosed separately from normal trading profits/losses of the
business in the financial statements of the business entity. Pre-acquisition profit will
be treated as capital profits and post-acquisition profit will be treated as normal profit
and it will be transferred to profit and loss account.
Working Notes:
1. Sales Manager Salary `
Total Salary 81,000
Less: Increased Salary 45,000
36,000
Monthly Salary = ` 36,000/12 3,000
Salary from April to July 3,000 + 3,000 + 3,000 + 8,000 = 17,000
Salary from August to March 8,000 x 8 = 64,000
2. Apportionment of Rent `
Total Rent 1,35,000
Less: Additional rent from 1.6.2022 to 31.8.2022 15,000
Rent of old premises for 12 months 1,20,000
Pre Post
Apportionment in time ratio (4:8 or 1:2) 40,000 80,000
Add: Rent for new space 10,000 5,000
Total 50,000 85,000

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3. Interest on Loan
Borrowing Interest = ` 15,00,000 x 10% x 5 / 12 = ` 62,500
Interest for Pre-incorporation period = ` 62,500 x 4 / 5 = ` 50,000
Interest for Post-incorporation period = ` 62,500 x 1 / 5 = ` 12,500
(b) Computation of claim for Loss of Stock
` `
Opening Stock on 1.4.2022 1,83,500
Add: Purchases during the period including 31,74,240
commission paid (` 31,12,000 + ` 62,240)
33,57,740
Less: Cost of Goods Sold: Sales during the period 37,54,000
Gross Profit thereon (7,50,800) (30,03,200)
Value of Closing Stock before fire 3,54,540
Note: Alternative way of presentation for computation of value of Closing Stock before fire:
Memorandum Trading A/c
Particulars ` Particulars `
To Opening Stock 1,83,500 By Sales 37,54,000
To Purchases 31,74,240 By Closing Stock 3,54,540
including (b.f.)
Commission
(31,12,000 + 62,240)
To Gross Profit @ 7,50,800
20% on Sales
41,08,540 41,08,540
Claim for Loss of Stock:
` `
Value of Closing Stock before fire 3,54,540
Less: Stock Salvaged 51,200
Agreed value of damage Stock 30,540 (81,740)
Loss of Stock 2,72,800
Claim = Loss of Stock x Insured Value / Total Cost of `
Stock = ` 2,72,800 x ` 3,00,000 / ` 3,54,540 = 2,30,834

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 30 INTERMEDIATE EXAMINATION: MAY 2023

(c) Seattle Branch Trial balance (in `)

Particulars Rate as per ` Debit ` Credit `
Stock (01-01-2022) 79.00 17,38,000
Purchases 79.50 79,50,000
Sales 79.50 1,03,74,750
Goods from HO Given 24,00,000
Salaries ($ 4,000 + $ 500 = $ 4,500 x 79.50 3,57,750
` 79.50)1
Head Office A/c Given 21,90,000
Sundry Debtors 83.00 1,82,600
Sundry Creditors 83.00 1,24,500
Cash at Bank & Hand 83.00 66,400
Salaries Outstanding ($ 500 x ` 83) 83.00 41,500
Exchange gain 36,000
Total 1,27,30,750 1,27,30,750
Question 6
Answer any four of the following:
(a) You are required to comment on the following cases as per the provisions of Accounting
Standard-1 ‘Disclosure of Accounting Policies’:
(1) Bee Limited has not complied with AS-2 "Valuation of inventories" and the same is
disclosed in the Notes on Accounts. Management is of the view that the financial
statements give a true and fair view as non-compliance with AS-2 is disclosed.
(2) Cee Limited sold its Office Building for ` 10,00,000 on 1 st March, 2023. The buyer
has paid the full amount and taken possession of the building. The book value of the
Office Building is ` 4,00,000. On 31 st 2023, documentation and legal formalities are
pending. The company has not recorded the disposal and the amount received is
shown as an advance.
(3) Dee Limited has prepared its accounts on cash basis and the same is not disclosed.
(4) Jee Limited disclosed significant accounting policies adopted in the preparation of
financial statements, in the Directors' Report. (5 Marks)

1 The amount of outstanding salary amounting $ 500 (included in the salaries) may be converted at
` 83 and the salary paid during the year at `79.50. In that case the amount of salaries including
outstanding salary debited in the trial balance will be for ` 3,59,500 [(4,000 X 79.5 =3,18,000) + (500 x
83= 41,500). In this case, the amount of exchange gain will be computed as ` 34,250.

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(b) Olivia bought a Home Theatre System on Instalment basis from Liam on 01/10/2022 on
the following terms:
(i) ` 40,000 to be paid immediately:
(ii) 6 half yearly instalments of ` 50,000 each to be paid commencing from 01/04/2023.
(iii) Interest is charged at 8% p.a. at half yearly intervals.
You are required to calculate the cash price of the Home Theatre System and the interest
paid with each instalment. (Round off figures to nearest rupee) (5 Marks)
(c) On 1st April, 2018 Improvis Limited issued ` 75,000, 9% Debentures of ` 100 each at a
premium of 5%. The Debentures are redeemable at 10% premium on 31.03.2023,
Investment as required by law was made in Fixed Deposit of Bank on 30.04.2022 earning
interest @8% p.a.
You are required to pass Journal Entries for the year 2022-2023 related to Investment and
Redemption of the Debentures (5 Marks)
(d) Mille started a business on 01.04.2022 with a capital of ` 15,00,000. She purchased
1,500 units of stock at ` 1,000 each. She sold the entire stock for ` 1,500 each unit till
31.03.2023.
You are required to calculate the maximum amount which can be withdrawn by Mille in
order to keep her capital intact, if Financial Capital is maintained at:
(i) Historical Cost
(ii) Current Purchasing Power (opening index at 100 and closing index at 125)
(iii) Physical Capital Maintenance
(Price per unit at the end of year is ` 1,350) (5 Marks)
(e) Storek Limited has a subscribed capital of ` 21,00,000 in Equity Share Capital consisting
of 1,50,000 shares of ` 10 each fully paid and 1,00,000 shares of ` 10 each, called up
capital ` 6 per share.
On 01.04.2023 the company decides to convert the partly paid-up shares into fully paid-up
shares by way of bonus issue and holders of fully paid-up shares are also allotted fully
paid-up bonus share in the same ratio.
The following figures appear in trial balance of Storek Limited as on 31.03.2023:
(` )
Capital Redemption Reserve 80,000
Capital Reserve 1,00,000
Securities Premium 2,20,000
General Reserve 12,50,000
Surplus (credit balance in Profit & Loss Account) 2,40,000

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 32 INTERMEDIATE EXAMINATION: MAY 2023

Securities Premium Account includes a premium of ` 75,000 for shares issued to vendors
pursuant to a scheme of absorption. It was decided that there should be minimum reduction
in free reserves.
You are required to pass necessary Journal Entries. (5 Marks)
Answer
(a) (1) As per AS-I disclosure of accounting policies is not a remedy for wrong or
inappropriate treatment in accounting. In the given case the financial statement does
not give a true and fair view as they are not in compliance with AS-2.
(2) Considering the substance over form as per AS-I, documentation and legal formalities
represent the form of the transaction, although the legal title has not been transferred,
the economic reality and substance are that the rights and beneficial interest in the
Office Building have been transferred. Therefore, recording of acquisition/ disposal
(by the transferee and transferor respectively) would in substance represent the
transaction entered into.
(3) Accrual is a fundamental accounting assumption. If it is not followed by the company,
the facts should be disclosed under AS-I. Hence the company should disclose the
fact that the cash basis of accounting has been followed in the notes on accounts.
(4) The practice followed by the company is not correct. It should be disclosed as part of
financial statements (The director’s report is not part of financial statements).
(b) Statement showing cash value of the machine acquired on hire-purchase basis
(Whenever Installment is half yearly & interest is p.a. convert interest rate for 6 months
dividing by 2)
Date Principal Interest @ 8% Principal + Repayment Principal
sum o/s at Interest sum o/s at
the the end
beginning
(A) (B) = D-C (C) = D x 4/104 (D) = E + F (E) (F)
1/4/23 262,107 10,484 272,591 50,000 222,591
1/10/23 222,591 8,904 231,495 50,000 181,495
1/4/24 181,495 7,260 188,755 50,000 138,755
1/10/24 138,755 5,550 144,305 50,000 94,305
1/4/25 94,305 3,772 98,077 50,000 48,077
1/10/25 48,077 1,923 50,000 50,000 0
Cash price = ` 2,62,107 + ` 40,000 = ` 3,02,107

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 PAPER – 1 : ACCOUNTING 33

(c)
Date Particulars ` `
30/4/22 Debenture Redemption Reserve Investment Dr. 11,25,000
(DRRI) A/c
To Bank A/c (75,00,000 x 15%) 11,25,000
(Being Debenture to be redeemed invested)
31/3/23 Bank A/c Dr. 12,07,500
To Debenture Redemption Reserve 11,25,000
Investment A/c
To Interest on DRRI A/c 82,500
(W.N.1) (11,25,000 x 8% x 11/12)
(Being amount of Investment matured)
9% Debentures A/c (75,000 x 100) Dr. 75,00,000
Premium payable on Redemption A/c 7,50,000
To Debentures Holder A/c 82,50,000
(Being Redemption amount Due)
Debentures Holders A/c Dr. 82,50,000
To Bank A/c 82,50,000
(Being amount paid to Debenture Holders)
Debenture Redemption Reserves (DRR)A/c Dr. 7,50,000
To General Reserve A/c Dr. 7,50,000
(Being Debenture Redemption Reserve
account transferred to General Reserve
Account)
Interest on DRRI A/c Dr. 82,500
To Profit & Loss A/c 82,500
(Being Interest transferred to Profit and Loss
account)
Profit & Loss A/c 7,50,000
To Premium Payable on Redemption A/c 7,50,000
(Being premium payable on redemption of
Debentures charged to Profit and Loss
account)

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 34 INTERMEDIATE EXAMINATION: MAY 2023

Note:
1. The following set of journal entries may be combined with any other entry or may be
presented as separate entries:
Interest on Debentures A/c Dr. 6,75,000
To Debenture Holders A/c 6,75,000
(Being Interest due to Debenture Holders)
Debenture Holders A/c Dr. 6,75,000
To Bank A/c 6,75,000
(Being interest on debentures paid to debenture
holders)
P&L A/c Dr. 6,75,000
To Interest on debentures A/c 6,75,000
(Interest on debentures charged to Profit & Loss
A/c)
2. Interest Received on DRRI = (11,25,000 x 8% x 11/12) = ` 82,500
(d) Financial Capital Maintenance at historical Costs
Sr. No. Particulars Computation `
(i) Opening Equity 1,500 x 1,000 15,00,000
(ii) Closing Equity 1,500 x 1,500 22,50,000
(iii) Maximum Drawing ii-i 7,50,000
Financial Capital Maintenance at current purchasing power
Sr. No. Particulars Computation `
(i) Opening Equity 1,500 x 1,000 x 125/100 18,75,000
(ii) Closing Equity 1,500 x 1,500 22,50,000
(iii) Maximum Drawing ii-i 3,75,000
Financial Capital Maintenance at Physical Capital Maintenance
Sr. No. Particulars Computation `
(i) Opening Equity 1,500 x1,350 20,25,000
(ii) Closing Equity 1,500 x 1,500 22,50,000
(iii) Maximum Drawing ii-i 2,25,000

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 PAPER – 1 : ACCOUNTING 35

(e) Journal Entries in the Books of Storek Limited

Sr. Particulars Debit ` Credit `
No.
(i) (a) General Reserve A/c Dr. 4,00,000
To Bonus to Equity Shareholders A/c 4,00,000
(Being transfer of ` 4,00,000 from General
Reserve to make the partly paid-up shares
(b) fully paid up) (1,00,000 x 4)
Equity Share Final Call A/c Dr. 4,00,000
To Equity Share Capital A/c 4,00,000
(Being final call due on 1,00,000 shares @
(c)
` 4 per share)
Bonus to Equity Shareholders A/c Dr. 4,00,000
To Equity Share Final Call A/c 4,00,000
(Being Bonus money applied for final call)
(ii) (a) Capital Redemption Reserve A/c Dr. 80,000
Security Premium A/c (` 2,20,000 – Dr. 1,45,000
` 75,000)
General Reserve A/c Dr. 7,75,000
To Bonus to Equity Shareholder A/c 10,00,000
(Being bonus issue) (4,00,000 / 6,00,000 x
15,00,000)
(b) Bonus to Equity Shareholder A/c Dr. 10,00,000
To Equity Share Capital A/c 10,00,000
(Being Bonus Shares issued to fully paid-
up shareholders)

Working Note:
Value of fully paid-up shares to partly paid-up shares = 15,00,000: 6,00,000 or 5:2.
Therefore, Bonus to be issued to fully paid up if ` 4,00,000 bonus issued to partly paid up
will be = ` 4,00,000 x 5 / 2 = ` 10,00,000.

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 36 INTERMEDIATE EXAMINATION: MAY 2023

Note:
1. Securities premium account and capital redemption reserve account may only be
applied in the paying up of unissued shares to be issued to members of the company
as fully paid bonus shares. In other words, securities premium account and capital
redemption reserve cannot be applied towards payment of unpaid amount on any
shares held by existing shareholders.
2. Question is silent on Capital Reserve whether realized in cash or not. Hence it is
assumed that not realized in cash and therefore not available for free reserves in the
above solution. If Capital Reserve is assumed to be realized in cash, then entry
number (ii) (a) may be given as below:
Capital Redemption Reserve A/c Dr. 80,000
Capital Reserve A/c Dr. 1,00,000
Security Premium A/c (` 2,20,000 – ` 75,000) Dr. 1,45,000
General Reserve A/c Dr. 6,75,000
To Bonus to Equity Shareholder A/c 10,00,000
(Being bonus issue) (4,00,000/6,00,000 x
15,00,000)

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 PAPER – 5: ADVANCED ACCOUNTING
Question No.1 is compulsory.
Candidates are also required to answer any four questions from the remaining five questions.
Working notes should form part of the respective answers.
Wherever necessary, candidates are permitted to make suitable assumptions which should be
disclosed by way of a note.
Question 1
Answer the following questions:
(a) From the following information given by Sampark Ltd., Calculate Basis EPS and Diluted
EPS as per AS 20 :
`
Net Profit for the current year 2,50,00,000
No. of Equity Shares Outstanding 50,00,000
No. of 12% convertible debentures of `100 each 50,000
Each debenture is convertible into 8 Equity Shares
Interest expense for the current year 6,00,000
Tax saving relating to interest expense (30%) 1,80,000
(b) On 1st April, 2018, Tina Ltd. take over the business of Rina Ltd. and discharged purchase
consideration as follows:
(i) Issued 50,000 fully paid Equity shares of ` 10 each at a premium of ` 5 per share to
the equity shareholders of Rina Ltd.
(ii) Cash payment of ` 50,000 was made to equity shareholders of Rina Ltd.
(iii) Issued 2,000 fully paid 12% Preference shares of ` 100 each at par to discharge the
preference shareholders of Rina Ltd.
(iv) Debentures of Rina Ltd. (` 1,20,000) will be converted into equal number and amount
of 10% debentures of Tina Ltd.
Calculate the amount of Purchase consideration as per AS-14 and pass Journal Entry
relating to discharge of purchase consideration in the books of Tina Ltd.
(c) Following transactions are disclosed as on 31st March, 2018:
(i) Mr. Sumit, a relative of Managing Director, received remuneration of ` 2,10,000 for
his services in the company for the period from 1st April, 2017 to 30th June, 2017. He
left the service on 1st July, 2017.

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 2 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2018

Should the relative be identified as a related party as on closing date i.e. on

31-3-2018 for the purpose of AS-18.
(ii) Goods sold amounting to ` 50 lakhs to associate company during the 1st quarter
ended on 30th June, 2017. After that related party relationship ceased to exist.
However, goods were supplied as was supplied to any other ordinary customer.
Decide whether transactions of the entire year have to be disclosed as related party
transactions.
(d) Sagar Ltd. has issued convertible bonds for ` 65 crores which are due to mature on 30th
September, 2018.
While preparing financial statements for the year ending 31st March, 2018, company
expects that bond holders will not exercise their option of converting bonds to equity
shares. How should the company classify the convertible bonds as per the requirements
of Schedule-Ill to the Companies Act, 2013 as on 31st March, 2018?
Also state, whether classification of convertible Bonds as per Schedule-III to the
Companies Act will change if the company expects that convertible bond holders will
convert their holdings into equity shares of Sagar Ltd. (4 Parts x 5 Marks = 20 Marks)
Answer
(a) Calculation of Basic Earning Per Share
Net Profit for the current year
Basic EPS =
No. of Equity Shares
2,50,00,000
=
50,00,000
Basic EPS per share = `5
Calculation of Diluted Earning Per Share
Adjusted net profit for the current year
Diluted EPS =
Weighted average no. of Equity Shares
Adjusted net profit for the current year `
Net profit for the current year 2,50,00,000
Add: Interest expenses for the current year 6,00,000
Less: Tax saving relating to Tax Expenses (1,80,000)
2,54,20,000
No. of equity shares resulting from conversion of debentures: 4,00,000 Shares

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 PAPER – 5 : ADVANCED ACCOUNTING 3

Weighted average no. of equity shares used to compute diluted EPS: (50,00,000 +
4,00,000) = 54,00,000 Equity Shares
Diluted earnings per share: (2,54,20,000/54,00,000) = ` 4.71 (Approx.)
(b)
Particulars `
Equity Shares (50,000 x 15) 7,50,000
Cash payment 50,000
12% Preference Share Capital 2,00,000
Purchase Consideration 10,00,000
As per AS 14, consideration for the amalgamation means the aggregate of the shares and
other securities issued and the payment made in the form of cash or other assets by the
transferee company to the shareholders of the transferor company. Thus, payment to
debenture holders are not covered by the term ‘consideration’.
Journal entry relating to discharge of consideration
in the books of Tina Ltd.
Liquidation of Rina Ltd.A/c 10,00,000
To Equity share capital A/c 5,00,000
To 12% Preference share capital A/c 2,00,000
To Securities premium A/c 2,50,000
To Bank/Cash A/c 50,000
(Discharge of purchase consideration)
(c) (i) According to AS 18 ‘Related Party Disclosures’, parties are considered to be related if at
any time during the reporting period, one party has the ability to control the other party or
exercise significant influence over the other party in making financial and/or operating
decisions.
Hence, Mr. Sumit a relative of key management personnel should be identified as
related party as at the closing date i.e. on 31.3.2018 as he received remuneration
forhis services in the company from1st April,2017 to 30th June, 2017and this period
comes under the reporting period.
(ii) As per provision of AS 18, the transactions only for the period in which related party
relationships exist need to be reported.
Hence, transactions of the entity with its associate company for the first quarter
ending 30.06.2017 only are required to be disclosed as related party transactions.
Transactions of the entire year need not be disclosed as related party transactions

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 4 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2018

and transactions for the period (after 1st July) in which related party relationship did
not exist need not be reported.
Hence transaction of sale of goods with the associate company for first quarter ending
30th June, 2017 for ` 50 Lakhs only are required to be disclosed as related party
transaction on 31.3.18.
(d) Schedule III to the companies Act, 2013 provides that:
“A liability should be classified as current when it satisfies any of the following criteria:
(a) it is expected to be settled in the company’s normal operating cycle;
(b) it is held primarily for the purpose of being traded;
(c) it is due to be settled within twelve months after the reporting date; or
(d) the company does not have an unconditional right to defer settlement of the liability
for at least twelve months after the reporting date. Terms of a liability that could, at
the option of the counterparty, result in its settlement by the issue of equity
instruments and do not affect its classification.”
In the present situation, Sagar Ltd. does not have an unconditional right to defer settlement
of the liability for at least 12 months after the reporting date, hence Sagar Ltd. should
classify the FCCBs as current liabilities as on 31st March 2018.
The position will be same even when the bond holders are expected to convert their
holdings into equity shares of Sagar Ltd. Expectations cannot be called as unconditional
rights. Thus, in this situation also, Sagar Ltd. should classify the FCCBs as current
liabilities as on 31st March 2018.
Question 2
(a) Lucky Ltd. grants 100 stock options to each of its 1,500 employees on 1-4-2014 for ` 40,
depending upon the employees at the time of vesting of options. Options would be
exercisable within a year it is vested. The market price of the share is ` 70 each. These
options will vest at the end of year 1 if the earning of Lucky Ltd. is 15%, or it will vest at
the end of the year 2 if the average earning of two years is 13% or lastly it will vest at the
end of the third year if the average earning of 3 years will be 10% 8,000, unvested options
lapsed on 31-3-2015. 6,000 unvested options lapsed on 31-3-2016 and finally 4,000
unvested options lapsed on 31-3-2017.
The earnings of Lucky Ltd. for the three financial years ended on 31st March, 2015; 2016
and 2017 are 14%, 10% and 8% respectively.
1,250 employees exercised their vested options within a year and remaining options were
unexercised at the end of the contractual life.
You are required to give the necessary journal entries for the above and also prepare the
statement showing compensation expense to be recognized at the end of each year.

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 PAPER – 5 : ADVANCED ACCOUNTING 5

(b) Rakshit Ltd., issued 3,00,000 shares of ` 10 each at a premium of ` 5. The entire issue
was underwritten by P, Q and R in the ratio of 3:2:1. Their firm underwriting was as follows:
P - 35,000 shares, Q - 20,000 shares, R - 22,500 shares
The total subscriptions, excluding firm underwriting, including marked applications were
for 1,60,000 shares. Marked applications received were as follows:
P - 45,000 shares, Q - 22,500 shares, R - 17,500 shares
The underwriting contract provided that credit for unmarked applications be given to the
underwriters in proportion to the shares underwritten and benefit of firm underwriting is to
be given to individual underwriters. The underwriters were entitled to commission @ 5%.
You are required to:
(i) Compute the underwriter's liability in number of shares.
(ii) Compute the amount payable to or due from underwriters.
(iii) Pass Journal entries in the books of the company relating to underwriting.
(10+10 =20 Marks)
Answer
(a)
Date Particulars ` `
31.3.2015 Employees compensation expense A/c Dr. 21,30,000
To ESOS outstanding A/c 21,30,000
(Being compensation expense
recognized in respect of the ESOP i.e. 100
options each granted to 1,500 employees at a
discount of ` 30 each, amortised on straight
line basis over vesting years (Refer W.N.)
Profit and Loss A/c Dr. 21,30,000
To Employees compensation 21,30,000
expenses A/c
(Being expenses transferred to profit and Loss
A/c)
31.3.2016 Employees compensation expenses A/c Dr. 5,90,000
To ESOS outstanding A/c 5,90,000
(Being compensation expense recognized in
respect of the ESOP- Refer W.N.)

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 6 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2018

Profit and Loss A/c Dr. 5,90,000

To Employees compensation 5,90,000
expenses A/c
(Being expenses transferred to profit and Loss
A/c)
31.3.2017 Employees compensation Expenses A/c Dr. 12,40,000
To ESOS outstanding A/c 12,40,000
(Being compensation expense recognized in
respect of the ESOP- Refer W.N.)
Profit and Loss A/c 12,40,000
To Employees compensation 12,40,000
expenses A/c
(Being expenses transferred to profit and Loss
A/c)
2018-19 Bank A/c (1,250 x100 x40) Dr. 50,00,000
ESOS outstanding A/c Dr. 37,50,000
[(39,60,000 x 1,25,000/ 1,32,000]
To Equity share capital (1250 x 100 x 10) 12,50,000
To Securities premium A/c [ (1250 x 100 75,00,000
x (70-10)]
(Being 1,25,000 options exercised at an
exercise price of ` 40 each)
31.3.2019 ESOS outstanding A/c Dr. 2,10,000
To General Reserve A/c 2,10,000
(Being ESOS outstanding A/c on lapse of 7,000
options at the end of exercise of option period
transferred to General Reserve A/c)

Working Note:
Statement showing compensation expense to be recognized at the end of:
Particulars Year 1 Year 2 Year 3
2014-15 2015-16 2016-17
Number of options expected 1,42,000 options 1,36,000 options 1,32,000 options
to vest*
Total compensation ` 42,60,000 ` 40,80,000 ` 39,60,000

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 PAPER – 5 : ADVANCED ACCOUNTING 7

expense accrued (70-40)

Compensation expense of 42,60,000 x 1/2 = 40,80,000 x 2/3
the year ` 21,30,000 = ` 27,20,000 ` 39,60,000
Compensation expense
recognized previously Nil ` 21,30,000 ` 27,20,000
Compensation expenses to
be recognized for the year ` 21,30,000 ` 5,90,000 ` 12,40,000
*It is assumed that each share is of ` 10 each and Lucky Ltd. expects all the options to be
vested after deducting actual lapses during the year.
(b) (i) Computation of total liability of underwriters in shares
(In shares)
P Q R Total
Gross liability 1,50,000 1,00,000 50,000 3,00,000
Less: Marked applications
(excluding firm underwriting) (45,000) (22,500) (17,500) (85,000)
1,05,000 77,500 32,500 2,15,000
Less: Unmarked applications
75,000 in the ratio of gross
liabilities of 3:2:1 (excluding firm
underwriting) (37,500) (25,000) (12,500) (75,000)
67500 52,500 20,000 1,40,000
Less: Firm underwriting (35,000) (20,000) (22,500) (77,500)
32,500 32,500 (2,500) 62,500
Less: Surplus of R adjusted in P &
Q’s in the ratio of gross liabilities of (1,500) (1,000) 2,500
3:2
Net liability 31,000 31,500 Nil 62,500
Add: Firm underwriting 35,000 20,000 22,500 77,500
Total liability 66,000 51,500 22,500 1,40,000
(ii) Calculation of amount payable to or due from underwriters
P Q R Total
Total Liability in shares 66,000 51,500 22,500 1,40,000
Amount receivable @ ` 15 from 9,90,000 7,72,500 3,37,500 21,00,000
underwriter (in `)

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 8 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2018

Less: Underwriting Commission (1,12,500) (75,000) (37,500) (2,25,000)

payable @ 5% of ` 15 ie issue
price (in `)
Net amount receivable (in `) 8,77,500 6,97,500 3,00,000 18,75,000
(iii) Journal Entries in the books of the company (relating to underwriting)
` `
1. P Dr. 9,90,000
Q Dr. 7,72,500
R Dr. 3,37,500
To Share Capital A/c 14,00,000
To Securities Premium A/c 7,00,000
(Being allotment of shares to underwriters)
2. Underwriting commission A/c Dr. 2,25,000
To P 1,12,500
To Q 75,000
To R 37,500
(Being amount of underwriting commission
payable)
3. Bank A/c Dr. 18,75,000
To P 8,77,500
To Q 6,97,500
To R 3,00,000
(Being net amount received by underwriters
for shares allotted less underwriting
commission)*
*assuming that the net amount was settled.
Question 3
(a) Virat Ltd. furnishes the following summarized Balance Sheet as at 31 st March, 2018:
Particulars ` `
Equity and Liabilities :
(1) Shareholders Funds:
Share Capital 10,000, 12% Pref. Shares of ` 100 10,00,000
each fully paid up

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 PAPER – 5 : ADVANCED ACCOUNTING 9

1,00,000 Equity shares of ` 10 each fully paid up 10,00,000

50,000 Equity shares of ` 10 each, ` 8 paid up 4,00,000 24,00,000
(b) Reserve and Surplus
Profit & Loss A/c. (Dr. Balance) (3,50,000)
(2) Non-current Liabilities:
12% Debentures 15,00,000
Loan on Mortgage 4,50,000 19,50,000
(3) Current Liabilities:
Bank Overdraft 2,75,000
Trade Payables 7,30,000 10,05,000
Total 50,05,000
Assets:
(1) Non-current Assets:
Fixed Assets - Land & Buildings 6,00,000
(2) Current Assets : Sundry Current Assets 44,05,000
Total 50,05,000
The mortgage loan was secured against the Land & Buildings. Debentures were secured
by a floating charge on all the assets of the company. The debenture holders appointed a
Receiver. The company being voluntarily wound up, a liquidator was also appointed. The
Receiver was entrusted with the task of realising the Land & Buildings which fetched
` 7,50,000 . Receiver also took charge of Sundry current assets of value ` 30,00,000 and
sold them for ` 28,75,000. The Bank overdraft was secured by a personal guarantee of
the directors who discharged their obligations in full from personal resources. The costs of
the Receiver amounted to ` 10,000 and his remuneration ` 15,000.
The expenses of liquidator was ` 17,500 and his remuneration was decided at 2% on the value
of the assets realised by him. The remaining assets were realised by liquidator for ` 12,50,000.
Preference dividend was in arrear for 2 years. Articles of Association of the company provide
for payment of preference dividend arrears in priority to return of equity capital.
Prepare the accounts to be submitted by the Receiver and the Liquidator. (10 Marks)
(b) The summarized Balance Sheet of SK Ltd. as on 31st March, 2018 is given below.
(`in '000)
Amount
Liabilities
35,000
Equity Shares of ` 10 each

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 10 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2018

8%, Cumulative Preference Shares of ` 100 each 17,500

6% Debentures of ` 100 each 14,000
Sundry Creditors 17,500
Provision for taxation 350
Total 84,350
Assets
Fixed Assets 43,750
Investments (Market value ` 3325 thousand) 3,500
Current Assets (Including Bank Balance) 35,000
Profit and Loss Account 2,100
Total 84,350
The following Scheme of Internal Reconstruction is approved and put into effect on
31st March, 2018.
(i) Investments are to be brought to their market value.
(ii) The Taxation Liability is settled at ` 5,25,000 out of current Assets.
(iii) The balance of Profit and Loss Account to be written off.
(iv) All the existing equity shares are reduced to ` 4 each.
(v) All preference shares are reduced to ` 60 each.
(vi) The rate of interest on debentures is increased to 9%. The Debenture holders
surrender their existing debentures of ` 100 each and exchange them for fresh
debentures of ` 80 each. Each old debenture is exchanged for one new debenture.
(vii) Balance of Current Assets left after settlement of taxation liability are revalued at
`1,57,50,000.
(viii) Fixed Assets are written down to 80%.
(ix) One of the creditors of the Company for ` 70,00,000 gives up 50% of his claim. He is
allotted 8,75,000 equity shares of ` 4 each in full and final settlement of his claim.
Pass journal entries for the above transactions. (10 Marks)
Answer
(a) Receiver’s Receipts and Payments Account
` `
Sundry Assets realized 28,75,000 Costs of the Receiver 10,000
Surplus received from Remuneration to Receiver 15,000

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 PAPER – 5 : ADVANCED ACCOUNTING 11

Mortgage Debentures holders

Sale Proceeds of land Principal* 15,00,000
and building 7,50,000
Less: Applied to Surplus transferred
Discharge to the Liquidator 16,50,000
of mortgage loan (4,50,000) 3,00,000
31,75,000 31,75,000
Note : * Assumed that interest on debentures has already been paid before winding up
proceedings.
Liquidator’s Final Statement of Account
` `
Surplus received from Cost of Liquidation (legal exp.) 17,500
Receiver 16,50,000 Remuneration to Liquidator 25,000
Assets Realized 12,50,000 (12,50,000 x 2%)
Calls on partly paid Unsecured Creditors:
Shareholders: for Trade 7,30,000
Directors for payment of Bank O/D 2,75,000
Preferential Shareholders:
Capital 10,00,000
Arrears of Preference Dividends 2,40,000
Equity shareholders:
Return of money to contributors
to holders
1,00,000 shares at ` 4.75 4,75,000
50,000 shares at ` 2.75 1,37,500
29,00,000 29,00,000
Working Note :
Amount to be paid or received from Equity shareholders `
Total Equity share capital paid up 14,00,000
Less: Surplus before call from Equity Shares (29,00,000 — 22,87,500) (6,12,500)
Loss to be borne by 1,50,000 shares 7,87,500
Loss per share = (7,87,500/ 1,50,000 shares) 5.25

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 12 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2018

Hence, Refund to Equity shareholders of 1,00,000 shares of ` 10 fully paid up 4.75

Refund to Equity shareholders of 50,000 shares of ` 8 paid up 2.75
(b) Journal Entries in the books of SK Ltd.
` ‘000 ` ‘000
(i) Equity share capital (` 10) A/c Dr. 35,000
To Equity Share Capital (` 4) A/c 14,000
To Capital Reduction A/c 21,000
(Being conversion of equity share capital of
` 10 each into ` 4 each as per reconstruction scheme)
(ii) 8% Cumulative Preference Share capital (` 100) A/c Dr. 17,500
To 8% Cumulative Preference Share Capital 10,500
(` 60) A/c
To Capital Reduction A/c 7,000
(Being conversion of 6% cumulative preference shares
capital of ` 100 each into ` 60 each as per reconstruction
scheme)
(iii) 6% Debentures (` 100) A/c Dr. 14,000
To 9% Debentures (` 80) A/c 11,200
To Capital Reduction A/c 2,800
(Being 9% debentures of ` 80 each issued to existing 6%
debenture holders. The balance transferred to capital
reduction account as per reconstruction scheme)
(iv) Sundry Creditors A/c Dr. 7,000
To Equity Share Capital (` 4) A/c 3,500
To Capital Reduction A/c 3,500
(Being a creditor of ` 70,00,000 agreed to surrender his
claim by 50% and was allotted 8,75,000 equity shares of
` 4 each in full settlement of his dues as per reconstruction
scheme)
(v) Provision for Taxation A/c Dr. 350
Capital Reduction A/c Dr. 175
To Liability for Taxation A/c 525
(Being conversion of the provision for taxation into liability
for taxation for settlement of the amount due)

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(vi) Liability for Taxation A/c Dr. 525

To Current Assets (Bank A/c) 525
(Being the payment of tax liability)
(vii) Capital Reduction A/c Dr. 34,125
To P & L A/c 2,100
To Fixed Assets A/c 8,750
To Current Assets A/c 18,725
To Investments A/c 175
To Capital Reserve A/c (Bal. fig.) 4,375
(Being amount of Capital Reduction utilized in writing off P
& L A/c (Dr.) Balance, Fixed Assets, Current Assets,
Investments and the Balance transferred to Capital
Reserve)
Working Note:
Capital Reduction Account
To Liability for taxation A/c 175 By Equity share capital 21,000
To P & L A/c 2,100 By 8% Cumulative preferences 7,000
To Fixed Assets 8,750 Share capital
To Current assets 18,725 By 6% Debentures 2,800
To Investment 175 By Sundry creditors 3,500
To Capital Reserve (Bal. 4,375
fig.)
34,300 34,300
Question 4
(a) On 31st March, 2018 the books of Nutan Insurance Company Limited contained the
following particulars in respect of marine insurance business:
Direct Business Re-insurance
(`) (`)
Premium:
Received 35,50,000 3,75,000
Receivable - 1.4.2017 2,14,500 18,700
Receivable - 31.3.2018 1,80,000 15,500
Paid 3,00,500

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Payable - 1.4.2017 10,400

Payable - 31.3.2018 15,200
Claims:
Paid 25,10,000 2,70,800
Payable - 1.4.2017 42,500 15,000
Payable - 31.3.2018 45,800 17,500
Received 2,17,000
Receivable - 1.4.2017 18,500
Receivable - 31.3.2018 19,200
Commission:
Paid 75,800 11,600
Received 12,400
Other Expenses and Income
`
Salaries 3,75,000
Rent rates and taxes 1,21,000
Printing and Stationary 24,800
Legal expenses (Inclusive of ` 18,000 for settlement of claims) 50,000
Interest, Dividend & Rent received (net) 1,12,500
Income tax deducted at source in respect of above 12,500
Bad Debts 5,800
Balance of fund as on 1-4-2017 was ` 38,50,000 including Additional Reserve for
` 3,60,000. Provision for Unexpired Risk to be created @100% and Additional Reserve
has to be maintained at 5% of net premium of the year.
Prepare the Revenue Account for the year ended 31st March, 2018. (10 Marks)
(b) While closing its books of accounts on 31st March 2018, a Non-Banking Finance Company
has its advances classified as follows:
` (in lakhs)
Standard assets 18,400
Sub-standard assets 1,250
Secured Portion of doubtful debts:
Upto one year 300

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One year to three years 90

More than three years 30
Unsecured portions of doubtful debts 92
Loss assets 47
Calculate the amount of provision which must be made against the Advances as per -
(i) The Non-banking Financial Company - Non-systematically Important Non-Deposit
taking Company (Reserve Bank) Directions, 2016; and
(ii) Non-banking Financial Company - Systematically Important Non- Deposit taking
Company (Reserve Bank) Directions, 2016. (10 Marks)
Answer
(a) Form B – RA (Prescribed by IRDA)
Revenue Account for the year ended 31st March, 2018
(Marine Insurance Business)
Schedule Current Year
`
Premiums earned (net) 1 36,70,900
Profit/(Loss) on sale/redemption of investments -
Others (to be specified) -
Interest, Dividends and Rent – Gross (Net + TDS)
(1,12,500 +12,500) 1,25,000
Total (A) 37,95,900
Claims incurred (net) 2 25,86,900
Commission 3 75,000
Operating expenses related to Insurance business 4 5,52,800
Total (B) 32,14,700
Operating Profit from Marine Insurance business (A-B) 5,81,200
Schedules forming part of Revenue Account
Current Year

Schedule –1
Premium earned
On direct business 35,15,500
On Reinsurance business 3,71,800

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 16 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2018

Total Premiums earned 38,87,300

Less: Premium on reinsurance ceded (3,05,300)
Total Premium earned (net) 35,82,000
Change in provision for unexpired risk
(Required provision – Existing reserve)
[(35,82,000 + 5% of 35,82,000 i.e. 37,61,100) – 38,50,000)] 88,900
Net Premium earned 36,70,900
Schedule – 2
Claims incurred
Claims paid( including legal expenses) 25,81,800
Add: Claims outstanding at the end of the year 44,100
Less: Claims outstanding at the beginning of the year (39,000)
25,86,900
Schedule – 3
Commission paid
Direct 75,800
Add: Re-insurance accepted 11,600
Less: reinsurance ceded (12,400)
75,000
Schedule – 4
Operating expenses related to insurance business*
Employees’ remuneration and welfare benefits 3,75,000
Rent, Rates and Taxes 1,21,000
Printing and Stationery 24,800
Legal and Professional charges 32,000
5,52,800
*Assumed to be related with Marine insurance business.
Working Notes:
1. Total Premium Income Direct Re-insurance
Received 35,50,000 3,75,000
Add: Receivable on 31st March, 2018 1,80,000 15,500
37,30,000 3,90,500
Less: Receivable on 1st April, 2017 (2,14,500) (18,700)
35,15,500 3,71,800

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2. Premium Expense on reinsurance

Premium Paid during the year 3,00,500
Add: Payable on 31st March, 2018 15,200
3,15,700
Less: Payable on 1st April, 2017 (10,400)
3,05,300
3. Claims Paid
Direct Business 25,10,000
Re-insurance 2,70,800
Legal Expenses 18,000
27,98,800
Less: Re-insurance claims received (2,17,000)
25,81,800
4. Claims outstanding as on 31st March, 2018
Direct 45,800
Re-insurance 17,500
63,300
Less: Recoverable from Re-insurers on (19,200)
31st March, 2018
44,100
5. Claims outstanding as on 1st April, 2017
Direct 42,500
Re-insurance 15,000
57,500
Less: Recoverable from Re-insurers on 1st April, (18,500)
2017
39,000
(b) Calculation of provision required on advances as on 31st March, 2018 as per the
Non-Banking Financial Company – Non-Systemically Important Non-Deposit taking
Company (Reserve Bank) Directions, 2016
Amount Percentage Provision
` in lakhs of provision ` in lakhs
Standard assets 18,400 0.25 46.00

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 18 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2018

Sub-standard assets 1,250 10 125.00

Secured portions of doubtful debts−
− upto one year 300 20 60.00
− one year to three years 90 30 27.00
− more than three years 30 50 15.00
Unsecured portions of doubtful debts 92 100 92.00
Loss assets 47 100 47.00
412.00
Calculation of provision required on advances as on 31st March, 2018 as per the Non-
Banking Financial Company - Systemically Important Non-Deposit taking Company and
Deposit taking Company (Reserve Bank) Directions, 2016
Amount Percentage of Provision
` in lakhs provision ` in lakhs
Standard assets 18,400 0.40* 73.60
Sub-standard assets 1,250 10 125.00
Secured portions of doubtful debts−
− upto one year 300 20 60.00
− one year to three years 90 30 27.00
− more than three years 30 50 15.00
Unsecured portions of doubtful debts 92 100 92.00
Loss assets 47 100 47.00
439.60
*Note: For the year ending on 31st March, 2018, the provision rate for standard assets is
0.40%.
Question 5
(a) The Profit and Loss Accounts of A Ltd. and its subsidiary B Ltd. for the year ended 31st
March, 2018 are given below :
` in Lakhs
Incomes A Ltd. B Ltd.
Sales and other income 7,500 1,500
Increase in Inventory 1,500 300
Total 9,000 1,800

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Expenses
Raw material consumed 1,200 300
Wages and Salaries 1,200 225
Production expenses 300 150
Administrative expenses 300 150
Selling and distribution expenses 300 75
Interest 150 75
Depreciation 150 75
Total 3,600 1,050
Profit before tax 5,400 750
Provision for tax 1,800 300
Profit after tax 3,600 450
Dividend paid 1,800 225
Balance of Profit 1,800 225
The following information is also given:
(i) A Ltd sold goods of ` 180 Lakhs to B Ltd at cost plus 25%. (1/6 of such goods were
still in inventory of B Ltd at the end of the year)
(ii) Administrative expenses of B Ltd include ` 8 Lakhs paid to A Ltd as consultancy fees.
(iii) Selling and distribution expenses of A Ltd include `15 Lakhs paid to B Ltd as
commission.
(iv) A Ltd holds 72% of the Equity Capital of B Ltd. The Equity Capital of B Ltd prior to
2016-17 is `1,500 Lakhs
Prepare a consolidated Profit and Loss Account for the year ended 31st March, 2018.
(10 Marks)

(b) The Balance sheet of Rupal Ltd. for the year ended 31st March, 2016, 2017 and 2018 are
as under:
Liabilities (` In lakhs)
31.3.2016 31.3.2017 31.3.2018
Share Capital: 160 lakhs Equity 3,500 3,500 3,500
shares of Rs 10 each (Fully paid up)
General reserve 1,200 1,480 1,650
Profit & Loss A/c 415 565 675

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 20 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2018

Secured Loans:
12% Debentures 75 75 75
Term Loan 250 230 210
Trade Payables 630 738 850
6,070 6,588 6,960
Assets
Land & Building 1,200 1,320 1,450
Plant & machinery 2,750 2,630 2,580
Inventory 1,210 1,520 1,830
Trade Receivables 760 950 1,055
Cash at bank 150 168 45
6,070 6,588 6,960
Additional information:
(i) Actual valuations were shown as under:
(` in lakhs)
2016 2017 2018
Land & Building 1,450 1,580 1,750
Plant & machinery 2,650 2,520 2,380
Inventory 1,520 1,830 2,140
Net profit (including opening balance after writing off 1,325 1,550 1,660
depreciation, tax provision and transfer to General
reserve)
(ii) On 1st April, 2015, balance in the General reserve and Profit & Loss A/c was ` 1,000
lakhs and ` 350 lakhs respectively. Capital employed in the business at market value
at the beginning of 2015-16 was ` 5,185 Iakhs.
(iii) The normal annual return on average capital employed in the same line of business
is 10%.
Find out the average capital employed in each year and value of goodwill at 4 year's
purchase of Super profits (simple average method). (10 Marks)

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Answer
(a) Consolidated Profit & Loss Account of A Ltd. and its subsidiary B Ltd.
for the year ended on 31st March, 2018
Particulars Note No. ` in Lacs
I. Revenue from operations 1 8,797
II. Total revenue 8,797
III. Expenses
Cost of Material purchased/Consumed 3 1,770
Changes of Inventories of finished goods 2 (1,794)
Employee benefit expense 4 1,425
Finance cost 6 225
Depreciation and amortization expense 7 225
Other expenses 5 802
Total expenses 2,653
IV. Profit before Tax(II-III) 6,144
V. Tax Expenses 8 2,100
VI. Profit After Tax 4,044

Notes to Accounts
` in Lacs ` in Lacs
1. Revenue from Operations
Sales and other income
A Ltd. 7,500
B Ltd. 1,500
9,000
Less: Inter-company Sales (180)
Consultancy fees received by A Ltd. from B Ltd. (8)
Commission received by B Ltd. from A Ltd. (15) 8,797
2. Increase in Inventory
A Ltd. 1,500
B Ltd. 300
1,800

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Less: Unrealised profits ` 180×1/6 x 25/125 (6) 1,794

3. Cost of Material purchased/consumed

A Ltd. 1,200
BLtd. 300
1,500
Less: Purchases by B Ltd. from A Ltd. (180) 1,320
Direct Expenses
A Ltd. 300
BLtd. 150 450
1,770
4. Employee benefits and expenses
Wages and Salaries:
A Ltd. 1,200
B Ltd. 225 1,425
5. Other Expenses
Administrative Expenses
A Ltd. 300
B Ltd. 150
450
Less: Consultancy fees received by A Ltd. from BLtd. (8) 442
Selling and Distribution Expenses:
A Ltd. 300
B Ltd. 75
375
Less: Commission received from B Ltd. from A Ltd. (15) 360
802
6. Finance Cost
Interest:
A Ltd. 150
B Ltd. 75 225
7. Depreciation and Amortisation

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Depreciation:
A Ltd. 150
B Ltd. 75 225
8. Provision for tax
A Ltd. 1800
B Ltd. 300 2100
Note: it is assumed that dividend adjustment has not be done in sales & other income of A Ltd
i.e. dividend received from B Ltd is not included in other income of A Ltd. Alternative answer is
possible considering is otherwise.
(b) Capital Employed at the end of each year (` In lakhs)
31.3.2016 31.3.2017 31.3.2018
` ` `
Land &Building (Revalued) 1,450 1,580 1,750
Plant & machinery 2,650 2,520 2,380
Inventory (Revalued) 1,520 1,830 2,140
Trade Receivables 760 950 1,055
Cash at Bank 150 168 45
Total Assets 6,530 7,048 7,370
Less: Trade Payables (630) (738) (850)
Term loan (250) (230) (210)
12% debentures (75) (75) (75)
Closing Capital employed 5,575 6,005 6,235
Add: Opening Capital employed 5,185 5,575 6,005

Total 10,760 11,580 12,240

Average Capital employed 5,380 5,790 6,120
Valuation of Goodwill (` In lakhs)
(i) Future Maintainable Profit 31.3.2016 31.3.2017 31.3.2018
Net Profit as given 1,325 1,550 1,660
Less: Opening Balance (350) (415) (565)
Adjustment for Valuation of Opening Inventory (310) (310)
Add: Adjustment for Valuation of closing 310 310 310
inventory

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Transferred to General Reserve 200 280 170

Future Maintainable Profit 1,485 1,415 1265
Less: 10% Normal Return on Avg. Capital
Employed 538 579 612
(ii) Super Profit 947 836 653
(i) Average Super Profit = ` (947+836+653)÷3 = ` 812 Lakh
(ii) Value of Goodwill at four years’ purchase= ` 812 lakh × 4 = ` 3248 lakh
Question 6
Answer any four of the following:
(a) Equity capital is held by L, M, N and O in the proportion of 30:40:20:10. A, B, C and D hold
Preference share capital in the proportion of 40:30:10:20. If the paid up Equity Share
capital of the company is ` 60 lakhs and Preference share capital is ` 30 lakhs, find the
voting rights of shareholders (in percentage) in case of resolution of winding up of the
company.
(b) What are the initial disclosure requirements of AS 24 for discontinuing operations?
(c) A Mutual Fund raised funds on 1st April, 2018 by issuing 10 lakhs units @ ` 20 per unit.
Out of this Fund, ` 180 lakhs invested in several capital market securities. The initial
expenses amount to ` 9 lakhs. During June, 2018, the fund sold certain securities of cost
` 140 lakhs for ` 175 lakhs and it bought certain securities for ` 125 lakhs. The Fund
Management expenses amounted to ` 5 lakhs per month and ` 0.75 lakh was in arrear.
The dividend earned was ` 4.50 lakhs 80% of the realized earnings were distributed among
the unit holders. The market value of the portfolio was ` 225 lakhs. Determine the Net
Asset Value (NAV) per unit as on 30th June, 2018.
(d) Forward Bank Ltd furnishes the following information as on 31 st March, 2018.
Amount in `
Bills Discounted 82,23,000
Rebate on bills discounted as on 1st April, 2017 1,32,960
Discount received 6,33,990
Details of bills discounted is as given below:
Value of Bills (`) Due Date Rate of Discount
10,95,000 15th June, 2018 14%
30,00,000 25th June, 2018 12%
16,92,000 5th July, 2018 16%
24,36,000 15th July, 2018 16%

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(i) Calculate the rebate on bills discounted as on 31st March, 2018.

(ii) Pass necessary Journal Entries.
(e) Mutual fund has launched a new scheme “All Purpose Scheme”. The Mutual Fund Asset
Management Company wishes to Invest 25% of the NAV of the scheme in an unrated debt
instrument of a company Zed Ltd., which has been paying above average returns for the
past many years. The promoters of the company seek advice in light of the regulations of
SEBI. Will the position change in case the debt instruments of the company Zed Ltd. are
rated. (4 x 5 = 20 Marks)
Answer
(a) L, M, N and O hold Equity capital is held by in the proportion of 30:40:20:10 and A, B, C
and D hold preference share capital in the proportion of 40:30:10:20. As the paid up equity
share capital of the company is `60 Lakhs and Preference share capital is ` 30 Lakh (2:1),
then relative weights in the voting right of equity shareholders and preference shareholders
will be 2/3 and 1/3.
The respective voting right of various shareholders will be
L = 2/3X30/100 = 3/15 = 20%
M = 2/3X40/100 = 4/15 = 26.67%
N = 2/3X20/100 = 2/15 = 13.33%
O = 2/3X10/100 = 1/15 = 6.67%
A = 1/3X40/100 = 4/30 = 13.33%
B = 1/3X30/100 = 3/30 = 10%
C = 1/3X10/100 = 1/30 = 3.33%
D = 1/3X20/100 = 2/30 = 6.67%
(b) An enterprise should include the following information relating to a discontinuing operation
in its financial statements beginning with the financial statements for the period in which
the initial disclosure event occurs:
A. A description of the discontinuing operation(s)
B. The business or geographical segment(s) in which it is reported as per AS 17
C. The date and nature of the initial disclosure event.
D. The date or period in which the discontinuance is expected to be completed if known
or determinable
E. The carrying amounts, as of the balance sheet date, of the total assets to be disposed
of and the total liabilities to be settled
F. The amounts of revenue and expenses in respect of the ordinary activities attributable
to the discontinuing operation during the current financial reporting period

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G. The amount of pre-tax profit or loss from ordinary activities attributable to the
discontinuing operation during the current financial reporting period, and the income
tax expense related thereto
H. The amounts of net cash flows attributable to the operating, investing, and financing
activities of the discontinuing operation during the current financial reporting period
(c)
` in lakhs ` in lakhs
Opening bank balance [` (200 – 180 - 9) lakhs] 11
Add: Proceeds from sale of securities 175
Dividend received 4.50
190.5
Less: Cost of securities 125
Fund management expenses
[` (15–0.75) lakhs] 14.25
Capital gains distributed
[80% of ` (175 – 140) lakhs] 28
Dividends distributed (80% of ` 4.5 lakhs) 3.6
(170.85)
Closing bank balance 19.65
Closing market value of portfolio 225
244.65
Less: Arrears of expenses (0.75)
Closing net assets(A) 243.9
Number of units (B) 10,00,000
Closing Net Assets Value (NAV) per unit (A/B) ` 24.39
(d) In order to determine the amount to be credited to the Profit and Loss A/c it is necessary
to first ascertain the amount attributable to the unexpired portion of the period of the
respective bills. The workings are as given below:
Value (`) Due Date Days after 31-03-2018 Discount % Discount
Amount `
10,95,000 15-06-2018 (30+31 + 15) = 76 14% 31,920
30,00,000 25-06-2018 (30 + 31 + 25) = 86 12% 84,822
16,92,000 05-07-2018 (30 + 31 + 30 + 5) = 96 16% 71,203
24,36,000 15-07-2018 (30 + 31 + 30 + 15) = 106 16% 1,13,191*
Rebate on bills discounted
as on 31.3.2018 3,01,136

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The journal entries will be as follows :

Dr. Cr.
` `
Rebate on Bills Discounted A/c Dr. 1,32,960
To Discount on Bills A/c 1,32,960
(Being the transfer of Rebate on Bills Discounted
on 1.4.2017 to Discount on Bills Account)
Discount on Bills A/c Dr. 3,01,136
To Rebate on Bills Discounted A/c 3,01,136
(Being the transfer of rebate on bills discounted
required on 1.4.2018 from discount on Bills
Account)
Discount on Bills A/c Dr. 4,65,814
To Profit and Loss A/c 4,65,814
(Being the amount of discount on Bills transferred
to Profit and Loss Account)
Working Note:
The amount of discount to be credited to the Profit and Loss Account will be:
`
Transfer from Rebate on bills
discount as on 1.4.17 1,32,960
Add: Discount received during
the year ended 31-3-2018 6,33,990
7,66,950
Less: Rebate on bills discounted
as on 31.3.2018 (3,01,136)
4,65,814
(e) The Seventh Schedule of SEBI (Mutual funds) Regulations, 1996 states that a mutual fund
scheme shall not invest more than 10% of its NAV in unrated debt instruments issued by
a single issuer and the total investment in such instruments shall not exceed 25% of the
NAV of the scheme. All such investments shall be made with the prior approval of the
Board of Trustees and the Board of Asset Management Company.

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It also states that a mutual fund scheme shall not invest more than 10% of its NAV in debt
instruments issued by a single issuer which are rated not below investment grade by an
authorized credit rating agency. Such investment limit may be extended to 12% of the NAV
of the scheme with the prior approval of the Board of Trustees and the Board of Asset
Management Company.
Accordingly, if the debts instruments of Zed Ltd. are unrated then Mutual Fund Asset
Management Company (AMC) cannot invest more than 10% of its NAV in those
instruments. If the debts instruments of Zed Ltd. are rated, even then, Mutual Fund Asset
Management Company cannot invest more than 12% of its NAV in those instruments.
Therefore, investment of 25% of its NAV of the scheme in debts instrument of Zed Ltd. by
Mutual Fund Asset Management Company is not permissible as per the SEBI (Mutual
Fund) Regulations, 1996.

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 PAPER – 1 : ACCOUNTING
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions may be made and indicated in answer by the
candidates.
Working Notes should form part of the answer.
Question 1
(a) Neon Enterprise operates a major chain of restaurants located in different cities. The
company has acquired a new restaurant located at Chandigarh. The new-restaurant
requires significant renovation expenditure. Management expects that the renovations
will last for 3 months during which the restaurant will be closed.
Management has prepared the following budget for this period –
Salaries of the staff engaged in preparation of restaurant before its opening ` 7,50,000
Construction and remodelling cost of restaurant ` 30,00,000
Explain the treatment of these expenditures as per the provisions of AS 10 "Property,
Plant and Equipment".
(b) (i) ABC Ltd. a Indian Company obtained long term loan from WWW private Ltd., a U.S.
company amounting to ` 30,00,000. It was recorded at US $1 = ` 60.00, taking
exchange rate prevailing at the date of transaction. The exchange rate on balance
sheet date (31.03.2018) was US $1 = ` 62.00.
(ii) Trade receivable includes amount receivable from Preksha Ltd.,` 10,00,000
recorded at the prevailing exchange rate on the date of sales, transaction recorded
at US $1 = ` 59.00. The exchange rate on balance sheet date (31.03.2018) was US
$1 = ` 62.00.
You are required to calculate the amount of exchange difference and also explain the
accounting treatment needed in the above two cases as per AS 11 in the books of ABC
Ltd.
(c) HIL Ltd. was making provision for non-moving stocks based on no issues having
occurred for the last 12 months upto 31.03.2017. The company now wants to make
provision based on technical evaluation during the year ending 31.03.2018.
Total value of stock ` 120 lakhs
Provision required based on technical evaluation ` 3.00 lakhs.
Provision required based on 12 months no issues ` 4.00 lakhs.
You are requested to discuss the following points in the light of Accounting Standard
(AS)-1:

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(i) Does this amount to change in accounting policy?

(ii) Can the company change the method of accounting?
(d) The accounting year of Dee Limited ended on 31st March, 2018 but the accounts were
approved on 30th April, 2018. On 15th April, 2018 a fire occurred in the factory and office
premises. The loss by fire is of such a magnitude that it was not possible to expect the
enterprise Dee Limited to start operation again.
State with reasons, whether the loss due to fire is an adjusting or non- adjusting event
and how the fact of loss is to be disclosed by the company in the context of the
provisions of AS-4 (Revised). (4 Parts x 5 Marks = 20 Marks)
Answer
(a) As per provisions of AS 10, any cost directly attributable to bring the assets to the
location and conditions necessary for it to be capable of operating in the manner
indicated by the management are called directly attributable costs and would be includ ed
in the costs of an item of PPE.
Management of Neon Enterprise should capitalize the costs of construction and
remodelling the restaurant, because they are necessary to bring the restaurant to the
condition necessary for it to be capable of operating in the manner intended by
management. The restaurant cannot be opened without incurring the construction and
remodelling expenditure amounting ` 30,00,000 and thus the expenditure should be
considered part of the asset.
However, the cost of salaries of staff engaged in preparation of restaurant ` 7,50,000
before its opening are in the nature of operating expenditure that would be incurred if the
restaurant was open and these costs are not necessary to bring the restaurant to the
conditions necessary for it to be capable of operating in the manner intended by
management. Hence, ` 7,50,000 should be expensed.

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(b) Amount of Exchange difference and its Accounting Treatment

Long term Loan Foreign `
Currency Rate
(i) Initial recognition US $ 50,000 1 US $ = ` 60 30,00,000
` (30,00,000/60)
Rate on Balance sheet date 1 US $ = ` 62
Exchange Difference Loss US $ 50,000 x 1,00,000
` (62 – 60)
Treatment: Credit Loan A/c
and Debit FCMITD A/c or Profit and Loss A/c
by ` 1,00,000
Trade receivables
(ii) Initial recognition US $ 16,949.152* 1 US $ = ` 59 10,00,000
(`10,00,000/59)
Rate on Balance sheet date 1 US $ = ` 62
Exchange Difference Gain US $ 16,949.152* x 50,847.456*
` (62-59)
Treatment: Credit Profit and Loss A/c by
` 50,847.456*
And Debit Trade Receivables
Thus, Exchange Difference on Long term loan amounting ` 1,00,000 may either be
charged to Profit and Loss A/c or to Foreign Currency Monetary Item Translation
Difference Account but exchange difference on trade receivables amounting
` 50,847.456 is required to be transferred to Profit and Loss A/c.
(c) The decision of making provision for non-moving inventories on the basis of technical
evaluation does not amount to change in accounting policy. Accounting policy of a
company may require that provision for non-moving inventories should be made but the
basis for making provision will not constitute accounting policy. The method of estimating
the amount of provision may be changed in case a more prudent estimate can be made.
In the given case, considering the total value of inventory, the change in the amount of
required provision of non-moving inventory from ` 4 lakhs to ` 3 lakhs is also not
material. The disclosure can be made for such change in the following lines by way of
notes to the accounts in the annual accounts of HIL Ltd. for the year 2017-18 in the
following manner:

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 4 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2018

“The company has provided for non-moving inventories on the basis of technical
evaluation unlike preceding years. Had the same method been followed as in the
previous year, the profit for the year and the value of net assets at the end of the year
would have been lower by ` 1 lakh.”
(d) As per AS 4 (Revised) “Contingencies and Events occurring after the Balance Sheet
Date”, an event occurring after the balance sheet date should be an adjusting event even
if it does not reflect any condition existing on the balance sheet date, if the event is such
as to indicate that the fundamental accounting assumption of going concern is no longer
appropriate.
T he fire occurred in the factory and office premises of an enterprise after 31 March, 2018
but before approval of financial statement of 30.4.18. The loss by fire is of such a
magnitude that it is not reasonable to expect the Dee Ltd. to start operations again, i.e.,
the going concern assumption is not valid. Since the fire occurred after 31/03/18, the loss
on fire is not a result of any condition existing on 31/03/18. But the loss due to fire is an
adjusting event the entire accounts need to be prepared on a liquidation basis with
adequate disclosures by the company by way of note in its financial statements in the
following manner:
“Major fire occurred in the factory and office premises on 15 th April, 2018 which has made
impossible for the enterprise to start operations again. Therefore, the financial
statements have been prepared on liquidation basis.”
Question 2
(a) Following transactions of Nisha took place during the financial year 2017-18:
1st April, 2017 Purchased ` 9,000 8% bonds of ` 100 each at ` 80.50 cum-
interest. Interest is payable on 1 st November and 1st May.
1st May, 2017 Received half year’s interest on 8% bonds.
10 July, 2017 Purchased 12,000 equity shares of ` 10 each in Moon Limited
for ` 44 each through a broker, who charged brokerage
@ 2%.
1st October 2017 Sold 2,250 8% bonds at ` 81 Ex-interest.
1st November, 2017 Received half year’s interest on 8% bonds.
15th January, 2018 Moon Limited made a rights issue of one equity share for
every four Equity shares held at ` 5 per share. Nisha
exercised the option for 40% of her entitlements and sold the
balance rights in the market at ` 2.25 per share.
15th March, 2018 Received 18% interim dividend on equity shares of Moon
Limited.

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Prepare separate investment account for 8% bonds and equity shares of Moon Limited in
the books of Nisha for the year ended on 31 st March, 2018. Assume that the average
cost method is followed.
(b) A fire engulfed the premises of a business of M/S Kite Ltd. in the morning, of 1 st October,
2017. The entire stock was destroyed except, stock salvaged of ` 50,000. Insurance
Policy was for ` 5,00,000 with average clause.
The following information was obtained from the records saved for the period from
1st April to 30th September, 2017:
`
Sales 27,75,000
Purchases 18,75,000
Carriage inward 35,000
Carriage outward 20,000
Wages 40,000
Salaries 50,000
Stock in hand on 31st March, 2017 3,50,000
Additional Information:
(1) Sales upto 30th September, 2017, includes ` 75,000 for which goods had not been
dispatched.
(2) On 1st June, 2017, goods worth ` 1,98,000 sold to Hari on approval basis which
was included in sales but no approval has been received in respect of 2/3rd of the
goods sold to him till 30th September, 2017.
(3) Purchases upto 30th September, 2017 did not include ` 1,00,000 for which
purchase invoices had not been received from suppliers, though goods have been
received in godown.
(4) Past records show the gross profit rate of 25% on sales.
You are required to prepare the statement of claim for loss of stock for submission to the
Insurance Company. (10 + 10 = 20 Marks)
Answer
(a) In the books of Nisha
8% Bonds for the year ended 31 st March, 2018
Date Particulars No. Income Amount Date Particulars No. Income Amount
` ` ` `
2017 1 May By Bank-Interest - 36,000
1 April, To Bank A/c 9,000 30,000 6,94,500 2017

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 6 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2018

Oct. 1
2018 To P & L A/c - - 8,625 1 Oct. By Bank A/c 2,250 7,500 1,82,250
March (W.N.1) 2017
31
To P & L A/c 40,500 1 Nov. By Bank-Interest 27,000
2018
2018 By Balance c/d
Mar. 31 (W.N.2)
6,750 - 5,20,875
9,000 70,500 7,03,125 9,000 70,500 7,03,125

Investment in Equity shares of Moon Ltd. for the year ended 31 st March, 2018
Date Particulars No. Income Amount Date Particulars No. Income Amount
` ` ` `
2017 To Bank 12,000 -- 5,38,560 2018 By Bank – - 23,760
July 10 A/c March dividend
15 *
2018 To Bank 1,200 - 6,000 March By Balance
Jan. 15 A/c 31 c/d
(W.N. 3) (bal. fig.) 13,200 - 5,44,560
March 31 To P & L
A/c - 23,760
13,200 23,760 5,44,560 13,200 23,760 5,44,560
* Considering that dividend was received on right shares also.
Working Notes:
1. Profit on sale of 8% Bonds
Sales price ` 1,82,250
Less: Cost of bond sold = 6,94,500/9,000x 2,250 (` 1,73,625)
Profit on sale ` 8,625
2. Closing balance as on 31.3.2018 of 8 % Bonds
6,94,500/ 9,000 x 6,750= ` 5,20,875
3. Calculation of right shares subscribed by Moon Ltd.
Right Shares = 12,000/4 x 1= 3,000 shares
Shares subscribed by Nisha = 3,000 x 40%= 1,200 shares
Value of right shares subscribed = 1,200 shares @ ` 5 per share = ` 6,000

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 PAPER – 1 : ACCOUNTING 7

4. Calculation of sale of right entitlement by Moon Ltd.

No. of right shares sold = 3,000 – 1,200 = 1,800 rights for ` 4,050
Note: As per para 13 of AS 13, sale proceeds of rights are to be credited to P & L
A/c.
(b) Computation of claim for loss of stock
`
Stock on the date of fire (i.e. on 1.10.2017) 3,75,000
Less: Stock salvaged (50,000)
Stock destroyed by fire (Loss of stock) 3,25,000
Insurance claim = ` 3,25,000
(Average clause is not applicable as insurance policy amount (` 5,00,000) is more than
the value of closing stock ie. ` 3,75,000)
Memorandum Trading A/c
(1.4.17 to 30.9.17)
Particulars (` ) Particulars (` )
To Opening stock 3,50,000 By Sales 25,68,000
To Purchases 19,75,000 By Goods with customers* 99,000
(` 18,75,000+` 1,00,000) (for approval) (W.N.1)
To Carriage inward 35,000 By Closing stock (bal. fig.) 3,75,000
To Wages 40,000
To Gross profit _______
(` 25,68,000 x 25%) 6,42,000
30,42,000 30,42,000
* For financial statement purposes, this would form part of closing stock (since there is
no sale). However, this has been shown separately for computation of claim for loss of
stock since the goods were physically not with the entity and, hence, there was no loss of
such stock.
Working Notes:
1. Calculation of goods with customers
Since no approval for sale has been received for the goods of ` 1,32,000 (i.e. 2/3 of
` 1,98,000) hence, these should be valued at cost i.e. ` 1,32,000 – 25% of
` 1,32,000 =` 99,000.

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 8 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2018

2. Calculation of actual sales

Total sales – Goods not dispatched - Sale of goods on approval (2/3 rd) =
Sales (` 27,75,000 – 75,000 – `1,32,000) = ` 25,68,000
Question 3
(a) Aman, a readymade garment trader, keeps his books of account under single entry
system. On the closing date, i.e. on 31st March, 2017 his statement of affairs stood as
follows:
Liabilities Amount ` Assets Amount `
Aman's capital 4,80,000 Building 3,25,000
Loan 1,50,000 Furniture 50,000
Creditors 3,10,000 Motor car 90,000
Stock 2,00,000
Debtors 1,70,000
Cash in hand 20,000
Cash at bank 85,000
9,40,000 9,40,000
Riots occurred and a fire broke out on the evening of 31st March, 2018, destroying the
books of accounts. On that day, the cashier had absconded with the available cash. You
are furnished with the following information:
1. Sales for the year ended 31st March, 2018 were 20% higher than the previous
year's sales, out of which, 20% sales were for cash. He always sells his goods at
cost plus 25%. There were no cash purchases.
2. Collection from debtors amounted to ` 14,00,000, out of which ` 3,50,000 was
received in cash.
3. Business expenses amounted to ` 2,00,000, of which ` 50,000 were outstanding on
31st March, 2018 and ` 60,000 paid by cheques.
4. Gross profit as per last year's audited accounts was ` 3,00,000.
5. Provide depreciation on building and furniture at 5% each and motor car at 20%.
6. His private records and the Bank Pass Book disclosed the following transactions for
the year 2017-18:
`
Payment to creditors (paid by cheques) 13,75,000
Personal drawings (paid by cheques) 75,000

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 PAPER – 1 : ACCOUNTING 9

Repairs (paid by cash) 10,000

Travelling expenses (paid by cash) 15,000
Cash deposited in bank 7,15,000
Cash withdrawn from bank 1,20,000
7. Stock level was maintained at ` 3,00,000 all throughout the year.
8. The amount defalcated by the cashier is to be written off to the Profit and Loss
Account.
You are required to prepare Trading and Profit and Loss A/c for the year ended
31st March, 2018 and Balance Sheet as on that date of Aman. All the workings should
form part of the answer.
(b) Axe Limited has four departments, A, B, C and D. Department A sells goods to other
departments at a profit of 25% on cost. Department B sells goods to other department at
a profit of 30% on sales. Department C sells goods to other departments at a profit of
10% on cost, Department D sells goods to other departments at a profit of 15% on sales.
Stock lying at different departments at the year-end was as follows:
Department Department Department Department
A B C D
Transfer from Department A - 45,000 50,000 60,000
Transfer from Department B 50,000 - - 75,000
Transfer from Department C 33,000 22,000 - -
Transfer from Department D 40,000 10,000 65,000 -
Departmental managers are entitled to 10% commission on net profit subject to
unrealized profit on departmental sales being eliminated.
Departmental profits after charging manager's commission, but before adjustment of
unrealized profit are as under:
`
Department A 2,25,000
Department B 3,37,500
Department C 1,80,000
Department D 4,50,000
Calculate the correct departmental profits after charging Manager's commission.
(15 + 5= 20 Marks)

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 10 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2018

Answer
(a) Trading and Profit and Loss Account of Aman
for the year ended 31st March, 2018
` `
To Opening Stock 2,00,000 By Sales 18,00,000
To Purchases (Bal. fig.) 15,40,000 By Closing Stock 3,00,000
To Gross Profit c/d 3,60,000 _______
21,00,000 21,00,000
To Business Expenses 2,00,000 By Gross Profit b/d 3,60,000
To Repairs 10,000
To Depreciation:
Building 16,250
Machinery 2,500
Motor Car 18,000 36,750
To Travelling Expenses 15,000
To Loss by theft (cash 20,000
defalcated)
To Net Profit 78,250 _______
3,60,000 3,60,000

Balance Sheet of Aman as at 31 st March, 2018

Liabilities ` ` Assets ` `
Capital 4,80,000 Building 3,25,000

Add: Less: Depreciation (16,250) 3,08,750

Net Profit 78,250 Furniture 50,000
Drawings (75,000) 4,83,250 Less: Depreciation (2,500) 47,500
Loan 1,50,000 Motor car 90,000
Less: Depreciation (18,000) 72,000
Sundry Creditors 4,75,000 Stock in Trade 3,00,000
Outstanding Sundry Debtors 2,10,000
business 50,000 Bank Balance 2,20,000
Expenses
11,58,250 11,58,250

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Working Notes:
1. Cash and Bank Account
Particulars Cash Bank Particulars Cash Bank
To Balance 20,000 85,000 By Payment to - 13,75,000
b/d Creditors
To Collection 3,50,000 10,50,000 By Business 90,000 60,000
from Expenses
Debtors
To Sales 3,60,000 – By Repairs 10,000 –
(18,00,000
x 20% )
To Cash (C) – 7,15,000 By Cash (C) 1,20,000
(withdrawal)
By Bank (C) 7,15,000
To Bank (C) 1,20,000 - By Travelling 15,000 –
Expenses
By Private - 75,000
Drawings
By Balance c/d 2,20,000
By Cash defalcated 20,000
_____ ______ (balancing fig.)
8,50,000 18,50,000 8,50,000 18,50,000

2. Calculation of sales during 2017-18 `

Gross profit (last year i.e. for year ended 3,00,000
31.3.2017
Goods sold at cost plus 25% i.e. 20% of sales 15,00,000
Sales for 2016-17 3,00,000/0.2
Sales for 2017-18 (15,00,000 x 1.2) 18,00,000
Credit sales for 2017-18 14,40,000
(80% of 18,00,000)
3. Debtors Account
To Bal. b/d. 1,70,000 By Cash 3,50,000
To Sales (18,00,000 x 80%) 14,40,000 By Bank 10,50,000
By Bal. c/d 2,10,000
______
16,10,000 16,10,000

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 12 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2018

4. Creditors Account
To Bank 13,75,000 By Bal. b/d 3,10,000
To Bal. c/d (bal. fig.) 4,75,000 By Purchases 15,40,000
_______ _____
18,50,000 18,50,000
(b) Calculation of correct departmental Profits
Department Department Department Department
A B C D
` ` ` `
Profit after charging 2,25,000 3,37,500 1,80,000 4,50,000
managers’ commission
Add back: Managers’ 25,000 37,500 20,000 50,000
commission (1/9)
2,50,000 3,75,000 2,00,000 5,00,000
Less: Unrealized profit on 31,000 37,500 5,000 17,250
stock (Working Note)
Profit before Manager’s 2,19,000 3,37,500 1,95,000 4,82,750
commission
Less: Commission for
Department Manager @ 21,900 33,750 19,500 48,275
10%
Correct Departmental
Profits after manager’s
commission 1,97,100 3,03,750 1,75,500 4,34,475
Working Note :
Stock lying with
Dept. A Dept. B Dept. C Dept. D Total
` ` ` `
Unrealized Profit
of:
Department A 45,000 x 25/125 50,000 x 60,000 x 25/125 31,000
= 9,000 25/125 = 12,000
=10,000
Department B 50,000 x 0.3 75,000 x 0.3 37,500
= 15,000 = 22,500

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Department C 33,000 x10/110 22,000x 10/110 5,000

= 3,000 = 2,000
Department D 40,000 x 0.15 10,000 x 0.15 65,000 x 17,250
= 6,000 = 1,500 0.15 = 9,750

Question 4
E, F and G were partners in a firm, sharing profits and losses in the ratio of 3:2:1, respectively.
Due to extreme competition, it was decided to dissolve the partnership on 31 st December,
2017. The balance sheet on that date was as follows:
Liabilities ` Assets `
Capital accounts: Machinery 1,54,000
E 1,13,100 Furniture & fittings 25,800
F 35,400 Investments 5,400
G 31,500 1,80,000 Stock 97,700
Current accounts: Debtors 56,400
E 26,400 Bank 29,700
G 6,000 32,400 Current account: F 18,000
Reserves 1,08,000
Loan account: G 15,000
Creditors 51,600
3,87,000 3,87,000
The realization of assets is spread over the next few months as follows:
February, Debtors, ` 51,900; March, Machinery, ` 1,39,500; April, Furniture, etc.
` 18,000; May, G agreed to take over investment at ` 6,300; June, Stock, ` 96,000.
Dissolution expenses, originally provided, were ` 13,500, but actually amounted to
` 9,600 and were paid on 30th April. The partners decided that after creditors were settled for
` 50,400, all cash received should be distributed at the end of each month in the most
equitable manner.
You are required to prepare a statement of actual cash distribution as received using
"Maximum loss basis" method. (20 Marks)
Answer
Statement of Distribution of Cash by ‘Maximum Loss Method’
Creditors G ’s Loan E F G Total
` ` ` ` `
Feb: Balance due 51,600 15,000 1,93,500 53,400 55,500 3,02,400*

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 14 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2018

Cash available 29,700

Collection from debtors 51,900
81,600
Less: prov for expenses 13,500
68,100
Creditors & Loan paid
(50,400 +15,000) 65,400 (50,400) (15,000)
1,200 -
Discount written off (1,200)
Available for E, F & G 2,700 -
Maximum possible loss
(3,02,400-2,700) =2,99,700
In ratio of 3:2:1 (1,49,850) (99,900) (49,950) (2,99,700)
43,650 (46,500) 5,550
Adjustment for F’s deficiency (36,370) 46,500 (10,130)
in ratio of 1,13,100: 31,500
7,280 - (4,580)
Adjustment for G’s deficiency (4,580) - 4,580
2,700
Cash paid to E 2,700
Balance due 1,90,800 53,400 55,500 (2,99,700)
March
Cash available ` 1,39,500
Maximum possible loss
` 2,99,700 – ` 1,39,500
= ` 1,60,200 in ratio of 3:2:1 (80,100) (53,400) (26,700) (1,60,200)
Cash paid 1,10,700 - 28,800 1,39,500
Balance 80,100 53,400 26,700 1,60,200
April
18,000 +3,900 (saving in
expenses) = 21,900
Maximum possible loss
` 1,60,200-21,900= 1,38,300 (69,150) (46,100) (23,050) (1,38,300)
in ratio of 3:2:1
Cash paid 10,950 7,300 3,650 21,900
Balance
May 69,150 46,100 23,050 1,38,300

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Investment taken by G 6300 6300

Balance 69150 46100 16750 132000
Maximum loss (66,000) (44,000) (22,000) (1,32,000)
(1,38,300 less 6,300)
Balance 3,150 2,100 1,050 6,300
Cash brought by G 5,250 5,250
(6,300 less 1,050)
Cash paid to E and F (3,150) (2,100) (5,250)
Balance 66,000 44,000 22,000 1,32,000
June
Stock 96,000
Maximum loss (18,000) (12,000) (6,000) 36,000
(1,32,000-96,000)
Cash paid 48,000 32,000 16,000 96,000
Unpaid balance (18,000) (12,000) (6,000) 36,000

*Partners’ capital balances after adjusting reserves and current A/c balance.
Working Note:
Statement showing the cash available for distribution:
Feb. ` 29,700 + 51,900 - 13,500 = ` 68,100
March ` 1,39,500
April ` 18,000 + 3,900 = 21,900
May - Nil
June ` 96,000
Question 5
(a) Sun Limited took over the running business of a partnership firm M/s A & N Brothers with
effect from 1st April, 2017. The company was incorporated on 1 st September, 2017. The
following profit and loss account has been prepared for the year ended 31 st March, 2018.
Particulars ` Particulars `
To salaries 1,33,000 By Gross Profit b/d 7,50,000
To rent 96,000
To carriage outward 75,000
To audit fees 12,000
To travelling expenses 66,000

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 16 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2018

To commission on sales 48,000

To printing and stationery 24,000
To electricity charges 30,000
To depreciation 80,000
To advertising expenses 24,000
To preliminary expenses 9,000
To Managing Director’s
8,000
remuneration
To Net Profit c/d 1,45,000
7,50,000 7,50,000
Additional Information :
1. Trend of sales during April, 2017 to March, 2018 was as under:
April, May ` 85,000 per month
June, July ` 1,05,000 per month
August, September ` 1,20,000 per month
October, November ` 1,40,000 per month
December onwards ` 1,50,000 per month
2. Sun Limited took over a machine worth ` 7,20,000 from A&N Brothers and
purchased a new machine on 1st February, 2018 for ` 4,80,000. The company
decides to provide depreciation @ 10% p.a.
3. The company occupied additional space from 1st October, 2017 @ rent of ` 6,000
per month.
4. Out of travelling expenses, ` 30,000 were incurred by office staff while remaining
expenses were incurred by salesmen.
5. Audit fees pertains to the company.
6. Salaries were doubled from the date of incorporation.
You are required to prepare a statement apportioning the expenses between pre and
post incorporation periods and calculate the profit/(loss) for such periods.
(b) A Company had issued 1,000 12% debentures of ` 100 each redeemable at the
company's option at the end of 10 years at par or prior to that by purchase in open
market or at ` 102 after giving 6 months notice. On 31 st December, 2016, the accounts of
the company showed the following balances:

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Debenture redemption fund ` 53,500 represented by 10% Govt. Loan of a nominal value
of ` 42,800 purchased at an average price of ` 101 and ` 10,272 uninvested cash in
hand.
On 1st January 2017, the company purchased ` 11,000 of its own debentures at a cost
of ` 10,272.
On 30th June, 2017, the company gave a six months notice to the holders of ` 40,000
debentures and on 31 st December, 2017 carried out the redemption by sale of ` 40,800
worth of Govt. Loan at par and also cancelled the own debentures held by it.
Prepare ledger account of Debenture Redemption Fund Account and Debenture
Redemption Fund Investment Account for the year ended 31.12.2017, assuming that,
interest on company debentures & Govt. loan was payable on 31st December every year.
(12+ 8 = 20 Marks)
Answer
(a) Statement showing calculation of profits for pre and post incorporation periods
for the year ended 31.3.2018
Particulars Pre-incorporation Post- incorporation
period period
` `
Gross profit (1:2) 2,50,000 5,00,000
Less: Salaries (5:14) 35,000 98,000
Carriage outward (1:2) 25,000 50,000
Audit fee - 12,000
Travelling expenses (W.N.3) 24,500 41,500
Commission on sales (1:2) 16,000 32,000
Printing & stationary (5:7) 10,000 14,000
Rent (office building) (W.N.4) 25,000 71,000
Electricity charges (5:7) 12,500 17,500
Depreciation 30,000 50,000
Advertisement (1:2) 8,000 16,000
Preliminary expenses - 9,000
MD remuneration _____- 8,000
Pre-incorporation profit – ts/f to Capital 64,000 -
reserve (Bal. Fig.)
Net profit (Bal. Fig.) - 81,000

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 18 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2018

Working Notes:
1. Time Ratio
Pre incorporation period = 1 st April, 2017 to 31st August, 2017
i.e. 5 months
Post incorporation period is 7 months
Time ratio is 5: 7.
2. Sales ratio
April 85,000
May 85,000
June 1,05,000
July 1,05,000
August 1,20,000
5,00,000
September 1,20,000
Oct & Nov. 2,80,000
Dec. to March (1,50,000 x 4) 6,00,000
10,00,000
5,00,000:10,00,000 = 1:2
3. Travelling expenses
` `
Pre-incorporation Post- incorporation
30,000 office staff (5:7) 12,500 17,500
36,000 sales (1:2) 12,000 24,000
24,500 41,500
4. Rent
`
Rent for additional space ` (6,000 x 6) 36,000
Remaining rent ` (96,000-36,000) 60,000
Pre-incorporation period (5/12 of 60,000) 25,000
Post- incorporation period `35,000 + `36,000 71,000

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5. Salaries
Suppose x for a month in pre- incorporation period then salaries for pre-
incorporation period = 5x salaries for post- incorporation period = 2x X 7= 14x
Ratio = 5:14
6. Depreciation
` `
Pre- Post-
` incorporation incorporation
Total depreciation 80,000
Less: Depreciation exclusively for post 8,000
incorporation period
(` 4,80,000 x 10 x 2/12) 8,000
72,000
Depreciation for pre-incorporation period
(` 72,000 x 5/12) 30,000
Depreciation for post incorporation period 42,000
(` 72,000 x 7/12)
30,000 50,000
(b) Debenture Redemption Fund Account
Date Particulars ` Date Particulars `
31.12.17 To Debenture 1.1.17 By Balance b/d 53,500
Redemption
Fund Investment 408
A/c
To Premium on 800 31.12.17 By interest on 4,280
redemption of DRFI (10%
debentures of ` 42,800)
To Balance c/d 57,892 By interest on 1,320
own
debentures
(ie. 12% on
` 11,000)
______
59,100 59,100
1.1.18 To Balance b/d 57,892

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 20 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2018

Debenture Redemption Fund Investment Account

` `
1.1.17 To Balance b/d 43,228 31.12.17 By Bank A/c 40,800
(428 x ` 101) By Debenture 408
redemption Fund
(1% of ` 40,800)

By 12% Debentures 11,000

1.1.17 To Bank 10,272 By Balance c/d 2,020
31.12.17 To capital 728
Reserve
(Profit on
cancellation of
Debentures)
54,228 54,228
1.1.18 To Balance b/d 2, 020

Question 6
Answer any four of the following:
(a) "Accounting Standards standardize diverse accounting policies with a view to eliminate
the non-comparability of financial statements and improve the reliability of financial
statements. "Discuss and explain the benefits of Accounting Standards.
(b) "One of the characteristic of the financial statement is neutrality."Do you agree with this
statement? Explain in brief.
(c) AXE Limited purchased fixed assets costing $ 5,00,000 on 1st Jan. 2018 from an
American company M/s M&M Limited. The amount was payable after 6 months. The
company entered into a forward contract on 1st January 2018 for five months @ ` 62.50
per dollar. The exchange rate per dollar was as follows :
On 1st January, 2018 ` 60.75 per dollar
On 31st March, 2018 ` 63.00 per dollar
You are required to state how the profit or loss on forward contract would be recognized
in the books of AXE Limited for the year ending 2017-18, as per the provisions of AS 11.
(d) Explain the conditions when a company should issue new equity shares for redemption of
the preference shares. Also discuss the advantages and disadvantages of redemption of
preference shares by issue of equity shares.
(e) Amit paid ` 50,000 as premium to other partners of the firm at the time of his admission
to the firm, with a condition that it will not be dissolved before expiry of five years. The
firm is dissolved after three years. Amit claims refund of premium. Explain -

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(1) Whether he is entitled to get a refund of the premium? If yes, list the criteria for the
calculation of the amount of the refund.
(2) Also explain any two conditions when no claim in this respect will arise.
(4 x 5 Marks = 20 Marks)
Answer
(a) Accounting Standards standardize diverse accounting policies with a view to eliminate
the non-comparability of financial statements and improve the reliability of financial
statements. Accounting Standards provide a set of standard accounting policies,
valuation norms and disclosure requirements. Accounting standards aim at improving the
quality of financial reporting by promoting comparability, consistency and transparency,
in the interests of users of financial statements.
The following are the benefits of Accounting Standards:
(i) Standardization of alternative accounting treatments: Accounting Standards
reduce to a reasonable extent confusing variations in the accounting treatment
followed for the purpose of preparation of financial statements.
(ii) Requirements for additional disclosures: There are certain areas where
important is not statutorily required to be disclosed. Standards may call for
disclosure beyond that required by law.
(iii) Comparability of financial statements: The application of accounting standards
would facilitate comparison of financial statements of different companies situated in
India and facilitate comparison, to a limited extent, of financial statements of
companies situated in different parts of the world. However, it should be noted in
this respect that differences in the institutions, traditions and legal systems from one
country to another give rise to differences in Accounting Standards adopted in
different countries.
(b) Yes, one of the characteristics of financial statements is neutrality. To be reliable, the
information contained in financial statement must be neutral, that is free from bias.
Financial Statements are not neutral if by the selection or presentation of information, the
focus of analysis could shift from one area of business to another thereby arriving at a
totally different conclusion based on the business results. Information contained in the
financial statements must be free from bias. It should reflect a balanced view of the
financial position of the company without attempting to present them in biased manner.
Financial statements cannot be prepared with the purpose to influence certain division,
i.e. they must be neutral.
(c) As per AS 11 “The Effects of Changes in Foreign Exchange Rates”, an enterprise may
enter into a forward exchange contract to establish the amount of the reporting currency
required, the premium or discount arising at the inception of such a forward exchange
contract should be amortized as expenses or income over the life of the contract.
Forward Rate ` 62.50

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 22 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2018

Less: Spot Rate (` 60.75)

Premium on Contract ` 1.75

Contract Amount US$ 5,00,000

Total Loss (5,00,000 x 1.75) ` 8,75,000
Contract period 5 months
3 months falling in the year 2017-18; therefore loss to be recognized in 2017-18
(8,75,000/5) x 3 = ` 5,25,000. Rest ` 3,50,000 will be recognized in the following year
2018-19.
(d) A company may prefer issue of new equity shares in the following situations:
(a) When the company realizes that the capital is needed permanently and it makes
more sense to issue Equity Shares in place of Redeemable Preference Shares
which carry a fixed rate of dividend.
(b) When the balance of profit, which would otherwise be available for dividend, is
insufficient.
(c) When the liquidity position of the company is not good enough.
Advantages of redemption of preference shares by issu e of fresh equity shares
(1) No cash outflow of money is required – now or later.
(2) New equity shares may be valued at a premium.
(3) Shareholders retain their equity interest.
Disadvantages of redemption of preference shares by issue of fresh equity sha res
(1) There will be dilution of future earnings;
(2) Share-holding in the company is changed.
(e) If the firm is dissolved before the term expires, as is the case, Amit, being a partner who
has paid premium on admission, will have to be repaid / refunded.
The criteria for calculation of refund amount are:
(i) Terms upon which admission was made,
(ii) The time period for which it was agreed that the firm will not be dissolved,
(iii) The time period for which the firm has already been in existence
No claim for refund will arise if:
(i) The firm is dissolved due to death of a partner or If the dissolution of the firm is
basically because of misconduct of,
(ii) If the dissolution is through an agreement and such agreement does not have a
stipulation for refund of premium.

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 PAPER – 1 : ACCOUNTING
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions may be made and indicated in answer by the
candidates.
Working Notes should form part of the answer.
Question 1
Answer the following questions:
(a) Glen Ltd. began construction of a new building on 1 st January, 2022. On 1 st April, 2022,
following two loans were obtained to fund the construction cost:
(i) Loan of ` 60,00,000 from Data Bank Ltd. was taken at interest rate of 8% per annum.
This loan was fully utilized for construction of the new building.
(ii) Loan of ` 20,00,000 from Satya Bank Ltd. Out of this, loan amount of ` 6,00,000 was
utilized for working capital purpose. Total interest of ` 1,92,000 were paid to Satya
Bank Ltd. for the financial year 2022-23.
Construction of the new building was completed on 31 st January, 2023 and was ready for
its intended use on the same date.
None of the loan was repaid during the year. The building is a qualifying asset for the
purpose of AS-16.
Out of loan from Data Bank Ltd., surplus funds were temporarily invested for the short
period of time. This temporary investment earned interest of ` 30,000.
You are required to calculate the amount of interest (a) to be capitalized, (b) to be charged
to profit and loss account from the total interest incurred as borrowing cost during the year
2022-23 (as per AS-16). (5 Marks)
(b) Karna Ltd., an Indian Company, has the following foreign currency transactions during the
financial year 2022-23:
(i) On 1st July, 2022, imported goods from Try Ltd., a German based company,
amounting to ` 30,96,000.
(ii) On 1st October, 2022, imported plant and machinery from Lucy Ltd., a German based
company, for € 18,500. The amount was paid on the date of import itself. (Ignore
depreciation).
(iii) On 1st December, 2022, exported good on credit to Cream Ltd., a German based
company, amounting to ` 50,40,000.

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All the above transactions were recorded in the books of account at the prevailing
exchange rate on the date of the transactions. Ignore taxes and duty on the above
transactions.
Payment due from Cream Ltd. and payment due to Try Ltd. is outstanding as on
31st March, 2023.
Rate of exchange between reporting currency ( `) and foreign currency (€) on different
dates are as under:
On 1st July, 2022 1 € = ` 86
On 1st October, 2022 1 € = ` 88
On 1st December, 2022 1 € = ` 84
On 31st March, 2023 1 € = ` 90
You are required, as per AS-11:
(i) To show value at which above items will appear in Balance sheet as on
31st March, 2023;
(ii) To calculate the amount of gain/loss on each of above transactions on account of
exchange differences, if any. (5 Marks)
(c) In the following cases, find the value of closing stock as per AS 2:
(i) Sonu is a retailer dealing in toys. During the year, he purchased items worth
` 1,47,000 and made a total sale ` 1,54,000. The average percentage of gross
margin is 10% on cost. Opening stock of toys at cost was ` 20,000.
(ii) On 21st March, 2023, Mohan purchased 250 chairs at ` 300 each. The selling price
of the chair is ` 400 each. Owing to a manufacturing defect, net realisable value of
the whole lot of chair was determined at 70% of their normal selling price. No chairs
were sold during the year. (5 Marks)
(d) A Ltd. purchased a Machinery for ` 75 Lakhs. Government Grant received towards this
Machinery is ` 10, Lakhs. Residual Value of Machinery at the end of useful life of 6 Years
is ` 5 Lakhs.
Asset is shown in Balance Sheet at net of grant.
At the beginning of the 3rd year, an amount becomes refundable to the extent of ` 8 Lakhs
due to non-compliance of certain conditions of grant.
You are required to give necessary Journal entries for the 1st year and the 3 rd year in the
books of A Ltd. (5 Marks)
Answer
(a) According to AS 16 “Borrowing Costs”, borrowing costs that are directly attributable to the
acquisition, construction or production of a qualifying asset should be capitalized as part

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of the cost of that asset. The amount of borrowing costs eligible for capitalization should
be determined in accordance with this Standard. Other borrowing costs should be
recognised as an expense in the period in which they are incurred.
The standard also states that to the extent that funds are borrowed specifically for the
purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for
capitalization on that asset should be determined as the actual borrowing costs incurred
on that borrowing during the period less any income on the temporary investment of those
borrowings.
Thus, eligible borrowing cost on Loan of data bank to be capitalized:
= `(60,00,000 x 8%)x 10/12 - `30,000
= `4,00,000 - ` 30,000
= `3,70,000
Loan Particulars Nature of (a) Interest to be (b) Interest to be
assets Capitalized ( `) charged to Profit &
Loss Account (`)
Data Construction Qualifying 3,70,000 (4,80,000 - 4,00,000)
bank of factory Asset 80,000
building
Satya Construction Qualifying (1,92,000x14/20) (1,92,000 x 14/20)
Bank of factory Asset x 10/12 x 2/12 = 22,400
building = 1,12,000

Satya Working Not a NIL (1,92,000x6/20)

Bank Capital Qualifying = `57,600
Asset
Total `4,82,000 `1,60,000
Note: Loan from Satya bank is considered to be specific borrowings.
(b) As per AS 11 “The Effects of Changes in Foreign Exchange Rates”, Foreign currency
monetary items should be reported using the closing rate. Non-monetary items which are
carried in terms of historical cost denominated in a foreign currency should be reported
using the exchange rate at the date of the transaction. Exchange differences arising on the
settlement of monetary items or on reporting an enterprise’s monetary items at rates
different from those at which they were initially recorded during the period, or reported in
previous financial statements, should be recognised as income or as expenses in the
period in which they arise.

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(i) Items given in the question will appear in the Balance Sheet at the following
values:
Trade Payables (30,96,000/86= 36,000 German Currency) x ` 90 = ` 32,40,000
Plant and Machinery 18,500 German Currency X ` 88 = `16,28,000
Trade Receivables (50,40,000/84= 60,000 German Currency) x ` 90 = ` 54,00,000
(ii) Amount of gain / loss on each transaction on account of exchange difference:
Exchange loss on Transaction of import of goods from Try Ltd. = ` (1,44,000)
[36,000 German Currency X ` 4 (i.e. 90-86)]
Exchange gain on Transaction of export of goods to Cream Ltd = ` 3,60,000
[60,000 German Currency X ` 6 (i.e. 90-84)]
(c) (i) Cost of closing inventory is shown below:
`
Sale value of opening stock and purchases 1,83,700
(` 20,000 + `1,47,000) x 1.10
Sales (1,54,000)
Sale value of unsold stock 29,700
Less: Gross Margin (` 29,700 / 1.10) x 0.10 (2,700)
Cost of closing inventory 27,000
(ii)
Closing stock at cost (250X ` 300) (i) 75,000
Net Realizable value of closing stock 70,000
(` 280* × 250) (ii)
Value of closing stock [lower of (i) and (ii)] 70,000
(d) Journal Entries in the Books of A Ltd.
Year Particulars ` in lakhs ` in lakhs
(Dr.) (Cr.)
1 Machinery Account Dr. 75
To Bank Account 75
(Being machinery purchased)
Bank Account Dr. 10
To Machinery Account 10
(Being grant received from the government
reduced from the cost of machinery)

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Depreciation Account (W.N.1) Dr. 10

To Machinery Account 10
(Being depreciation charged on Straight Line
method (SLM))
Profit & Loss Account Dr. 10
To Depreciation Account 10
(Being depreciation transferred to Profit and
Loss Account at the end of year 1)
3 Machinery Account Dr. 8
To Bank Account 8
(Being government grant on machinery partly
refunded which increased the cost of fixed
asset)
Depreciation Account (W.N.2) Dr. 12
To Machinery Account 12
(Being depreciation charged on SLM on
revised value of fixed asset prospectively)
Profit & Loss Account Dr. 12
To Depreciation Account 12
(Being depreciation transferred to Profit and
Loss Account at the end of year 3)
Working Notes:
1. Depreciation for Year 1
` in lakhs
Cost of the Machinery 75
Less: Government grant received (10)
65
 65 - 5 
Depreciation   10
 6 
2. Depreciation for Year 3
` in lakhs
Cost of the Machinery 75
Less: Government grant received (10)
65
Less: Depreciation for the first two years 20
45

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Add: Government grant refundable 8

53
53-5
Depreciation for the third year [ ] 12
4
Question 2
(a) Mr. Harry had taken out a fire policy of the loss of stock for ` 11,00,000 and a loss of profits
policy for ` 17,00,000 having an indemnity period of 6 months. Trading and Profit & Loss
Account for the year ended 31-03-2023 were as follows:
Trading and Profit & Loss Account of Mr. Harry for the year ended 31-03-2023.
Particulars Amount Particulars Amount
(` ) (` )
To Opening Stock 1,70,000 By Sales 85,00,000
To Purchases 49,30,000 By Closing Stock 7,65,000
To Manufacturing Expenses 14,45,000
To Gross Profit c/d 27,20,000
92,65,000 92,65,000
To Salary to permanent employees 5,30,000 By Gross Profit b/d 27,20,000
To Advertisement Expenses 70,000
To Interest on Mortgage Loan 1,65,000
To Rent 2,80,000
To Net Profit 16,75,000
27,20,000 27,20,000
On 1st July 2023, a fire occurred on the premises of Mr. Harry and as a result, sales were
seriously affected for 3 months. The entire stock was gutted with nil salvage value. The
following information is available for the period 1-04-23 to 30-06-23:
Particulars Amount (`)
Purchases 12,60,000
Manufacturing expenses 3,74,500
Sales 21,16,000
Other information:
Sales during the period 1-07-23 to 30-09-23 were ` 7,43,750.
The standing charges insured were ` 8,75,000.
Additional expenses incurred after the fire were ` 5,10,000.

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The general trend of the industry shows an increase in sales by 15% and a decrease in
Gross Profit by 5% due to increased costs.
Ascertain the claim for stock and loss of profit. (12 Marks)
(b) Mr. Anuj bought eight Scooters from Bee Motors on 1st April, 2020 on the following H ire
Purchase agreement terms:
Down payment ` 10,00,000
1st installment payable at the end of 1st year ` 5,30,000
2nd installment payable at the end of 2nd year ` 4,90,000
3rd installment payable at the end of 3rd year ` 5,50,000
Interest is charged at the rate of 10% p.a.
Mr. Anuj provides depreciation @ 20% p.a. on the diminishing balances.
On 31st March, 2023, Mr. Anuj failed to pay the 3rd installment, upon which Bee Motors
repossessed three Scooters. Bee Motors agreed to leave the remaining Scooters with
Mr. Anuj and adjusted the value of the repossessed Scooters against the amount due. The
Scooters repossessed were valued at ` 3,94,450. The balance amount remaining in the
vendor's account after the above adjustment was paid by Mr. Anuj after 3 months with
interest @ 18% p.a.
You are required to:
(i) Calculate the cash price of the Scooters and the interest payable with each
installment.
(ii) Prepare the Scooters Account and Bee Motors Account (up to the final payment
made) in the books of Mr. Anuj. (8 Marks)
Answer
(a) (A) Calculation of Claim for loss of stock
Gross profit
(i) Calculation of G.P. ratio = 100
Net Sales of previous year
27,20,000
=  100 = 32%
85,00,000

= Less: fall in G.P. rate = (5%)

27%

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 8 INTERMEDIATE EXAMINATION: NOVEMBER 2023

(ii) Calculation of value of stock on 1.7.23

Memorandum Trading A/c for the period 1.4.23 to 30.6.23
Particulars ` Particular `
To Opening Stock 7,65,000 By Sales 21,16,000
To Purchases 12,60,000 By Closing stock 8,54,820
(Bal figure)
To Manufacturing Expenses 3,74,500
To Gross Profit 5,71,320
(21,16,000 × 27%)
29,70,820 29,70,820
(iii) Value of Claim
Value of Stock on 1.7.23 8,54,820
Less: Salvage value Nil
Value of stock to be claimed 8,54,820
As policy amount is more than insurable value of stock so full claim amount would be
allowed.
Thus, value of claim for loss of stock will be ` 8,54,820
(B) Calculation of the amount of claim under the Loss of Profit Policy
(1) Calculation of short sales:
`
Sales for the period 01.07.2022 to 30.09.2022
[(66,60,000 x 3/9) Refer W.N 9] 22,20,000
Add: 15% increase in turnover 3,33,000
Estimated sales 25,53,000
Less: Actual Sales from 01.07.2023 to 30.09.2023 7,43,750
Short Sales 18,09,250

(2) Rate of gross profit:

`
Net profit for the year 22-23 16,75,000
Add: Insured standing charges 8,75,000
25,50,000

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Sales for the year 22-23 85,00,000

Rate of GP for the year 2022-23 25,50,000
x 100
85,00,000
= 30%
Rate of GP for the current year 30% - 5% = 25%
(3) Calculation of Loss of Profit on short sales
` 18,09,250 X 25% = ` 4,52,312* (rounded off)
(4) Calculation of claim for the increased cost of working
Least of the following:
(a) Actual Expenses = ` 5,10,000
Actual additional expense  GP on adjusted turnover
(b)
G.P. on adjusted turnover + uninsured standing charges
24,43,750
5,10,000 x
24,43,750 +1,00,000*
* (5,30,000+1,65,000+2,80,000 -8,75,000)
= ` 4,89,951
(c) Gross Profit on sales generated due to additional expenses
` 7,43,750 X 25% = ` 1,85,938** (rounded off)
` 1,85,938 being the least, shall be the increased cost of working.
(5) Calculation of total loss of profit:
`
Loss of profit on short sales 4,52,312**
Add: Increased cost of working 1,85,938
6,38,250
(6) Calculation of adjusted annual sales:
`
Sales from 1.7.22 to 31.3.23 66,60,000
Sales for 1.4.23 to 30.6.23 21,16,000
Sales for 12 months preceding the date of fire 87,76,000
Add: 15% increases in sales (66,60,000) 9,99,000
Adjusted annual sales 97,75,000

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 10 INTERMEDIATE EXAMINATION: NOVEMBER 2023

(7) Calculation of insurable amount:

Adjusted annual sales X G.P. Rate = ` 97,75,000 X 25% = ` 24,43,750
(8) Claim amount under Loss of Profit Policy (Average Clause):
Insured amount
×Total loss of profit
Insurable amount
17,00,000
` 6,38,250 ×
24,43,750
= ` 4,44,000
9. Breakup of the sales for the year 2022-23
Sales for 01.04.22 to 30.06.22
` 21,16,000/115 X 100 18,40,000
Sales for the remaining period (85,00,000 – 18,40,000) 66,60,000
85,00,000
The sales figure of 1.4.23 to 30.6.23 was already trend adjusted.
**Alternatively, it may be rounded off as and ` 1,85,937 and ` 4,52,313 (rounded off).
Accordingly, the corresponding figures will get changed.
(b) (i) Calculation of Interest and Cash Price
No. of Outstanding Amount Outstanding Interest Outstanding
instalments balance at due at the balance at the balance at
the end after time of end before the the beginning
the payment instalment payment of
of instalment instalment
[1] [2] [3] [4] = 2 +3 [5] = 4 x [6] = 4-5
10/110
3rd - 5,50,000 5,50,000 50,000 5,00,000
2nd 5,00,000 4,90,000 9,90,000 90,000 9,00,000
1st 9,00,000 5,30,000 14,30,000 1,30,000 13,00,000
Total cash price = `13,00,000 + 10,00,000 (down payment) = ` 23,00,000.
(ii) In the books of Anuj
Scooters Account
Date Particulars ` Date Particulars `
1.04.20 To Bee Motors 31.3.21 By Depreciation A/c 4,60,000
A/c 23,00,000
By Balance c/d 18,40,000

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 PAPER – 1 : ACCOUNTING 11

23,00,000 23,00,000
1.04.21 To Balance b/d 18,40,000 31.3.22 By Depreciation A/c 3,68,000
By Balance c/d 14,72,000
18,40,000 18,40,000
1.04.22 To Balance b/d 14,72,000 31.3.23 By Depreciation A/c 2,94,400
By Bee Motors A/c (Value 3,94,450
of 3 Scooter taken over)
By Loss transferred to 47,150
Profit and Loss a/c on
surrender (Bal. fig.)
By Balance c/d 7,36,000
[(14,72,000-2,94,400)
5
11,77,600] ×
8
14,72,000 14,72,000
Bee Motors Account
Date Particulars ` Date Particulars `
1.04.20 To Bank (down 10,00,000 1.04.20 By Scooters A/c 23,00,000
payment)
31.3.21 To Bank 5,30,000 31.3.21 By Interest A/c 1,30,000
(1st Instalment)
31.3.21 To Balance c/d 9,00,000
24,30,000 24,30,000
31.3.22 To Bank 4,90,000 1.04.21 By Balance b/d 9,00,000
(2nd Instalment)
To Balance c/d 5,00,000 31.3.22 By Interest A/c 90,000
9,90,000 9,90,000
31.3.23 To Scooters A/c 3,94,450 1.04.22 By Balance b/d 5,00,000
To Balance c/d (b.f.) 1,55,550 31.3.23 By Interest A/c 50,000
5,50,000 5,50,000
30.6.23 To Bank 1,62,550 1.04.23 By Balance b/d 1,55,550
(Amount settled 30.06.23 By Interest A/c
after 3 months) (@ 18% on 7,000
bal.)
(1,55,550 x 3/12 x
18/100)
1,62,550 1,62,550

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 12 INTERMEDIATE EXAMINATION: NOVEMBER 2023

Question 3
(a) Following information is given by Mr. Happy (stock broker) relating to his holding in 10%
Government Bonds:
Opening Balance as on 1st April, 22 was 5,000 units (Nominal value ` 100 each), Cost
` 4,85,000
On 1st June, 22, Purchased 600 units, cum-interest @ ` 99
On 1st August, 22, Purchased 2400 units, ex-interest @ ` 97.50
On 1st October, 22, Sold 2,500 units @ ` 98.50, ex-interest
On 1st January, 23, Sold 3,000 units @ ` 99 cum interest
Interest is received on 30th June and 31st December each year. Mr. Happy closes his
books on 31st March each year.
Prepare Investment Account in the books of Mr. Happy assuming that FIFO method of
valuation is followed by Mr. Happy. (10 Marks)
(b) Jolly Industries of Delhi is a trader in spices. It has a branch at Jalandhar to which Head
office invoice goods at 20% on sales. The Jalandhar branch sells spices both on cash and
credit. Branch remit all the cash received to Head Office Bank account, thus all expenses
of branch are also directly paid from head office.
From the following information given, Prepare Branch Accounts in the Head office ledger
using Stock and Debtors Method.
Branch does not maintain any books of account, but send fortnightly returns to Head office.
`
Stock at Jalandhar Branch as on 1st April, 2022 (Cost Price) 1,00,000
Sundry Debtors at Jalandhar as on 1st April, 2022 1,10,000
Cash received from Debtors 3,45,000
Bad debts during the year 9,500
Discount allowed to Debtors 5,500
Goods received from Head Office at Invoice Price 6,00,000
Returns to Head office at Invoice Price 60,000
Normal loss of goods during transport (Out of Goods sent by H.O. to 12,000
Branch)
Sales returns at Jalandhar Branch 11,000
Salaries and staff welfare expenses at Branch 54,000
Rent and taxes at Branch 9,000
Other Office Expenses 2,500

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Sundry Debtors at Branch as at 31 st March 2023 1,55,000

Stock at Jalandhar as on 31 st March, 2023 (Cost Price) 1,20,000
Credit sales at Branch are four times of the cash Sales at Branch. (10 Marks)
Answer
(a) In the Books of Mr. Happy
10% Government Bonds (Investment) Account
Particulars Nominal Interest Principal Particulars Nominal Interest Principal
Value Value
2022-23 ` ` ` 2022-23 ` ` `
April1 To Balance 5,00,000 12,500 4,85,000 June. 30 By Bank A/c 28,000
b/d (W.N.1) (W.N.3)
June 1 To Bank A/c 60,000 2,500 56,900 Oct. 1 By Bank A/c 2,50,000 6,250 2,46,250
(W.N.2) (W.N.4)
Dec.31 By Bank A/c 27,500
(W.N.6)
Aug. 1 To Bank A/c 2,40,000 2,000 2,34,000 Jan. 1 By Bank A/c 3,00,000 2,97,000
(W.N.7)
Oct. 1 To P&L A/c 3,750 March3 By Balance 2,50,000 6,250 2,43,483
(W.N.5) 1 c/d (W.N. 9
& W.N.10)
Jan. 1 To P&L A/c 7,083
(b.f.)
(W.N.8)
March To P&L A/c 51,000
31 (Transfer)
8,00,000 68,000 7,86,733 8,00,000 68,000 7,86,733

Working Notes:
1. Interest element in opening balance of bonds = 5,00,000 x 10% x 3/12 = ` 12,500
2. Purchase of bonds on 1.6.22
Interest element in purchase of bonds = 600 x 100 x 10% x 5/12 = ` 2,500
Investment element in purchase of bonds = (600 X 99) = ` 59,400 - ` 2,500 = 56,900
3. Interest for half-year ended 30.6.22 = ` 5,60,000 x 10% x 6/12 = ` 28,000
4. Sale of bonds on 1.10.2022
Interest element = 2,500 x 100 x 10% x 3/12 = ` 6,250
Investment element = 2,500 x 98.50 = ` 2,46,250

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5. Profit on sale of bonds on 1.10.22

Cost of bonds = (4,85,000/5,000 X 2,500) = 2,42,500
Sale proceeds = ` 2,46,250
Profit element = ` 3,750
6. Interest for half-year ended 31 December 2022
= 5,500 x 100 x 10% x 6/12 = ` 27,500
7. Sale of bonds on Jan.1 ,23
Interest element = 0 (Nil)
Investment element = 3000 x ` 99 = `2,97,000
8. Profit on sale of bonds on Jan 1, 23
Cost of bonds = [2,42,500+56,900X5/6] = 2,42,500 + 47,417 = 2,89,917
Sale proceeds = ` 2,97,000
Profit element = ` 7,083
9. Closing value of investment
Calculation of closing balance: Nominal `
value
Bonds in hand remained in hand on 1.4.22 ---
Purchased on 1st June,22 10,000 9,483
Purchased on 1 st August,22 2,40,000 2,34,000
2,50,000 2,43,483
10. Interest element in closing balance of bonds = 2,500 x 100 x 10% x 3/12 = `6,250.
(b) Books of Jolly Industries, Delhi
Jalandhar Branch Stock Account
Particulars ` Particulars `
To Balance b/d – Op Stock 1,25,000 By Bank A/c – Cash Sales 1,04,000
To Branch Debtors A/c – 11,000 By Branch Debtors A/c - 4,16,000
Sales Return Credit Sales
To Goods sent to Branch A/c 6,12,000 By Goods sent to Branch 60,000
(6,00,000 +12,000) (Returns to H.O.)
By Branch Stock Adjustment 12,000
A/c (Normal Loss)

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By Branch Stock Adjustment 6,000

A/c (Abnormal Loss)
(bal. fig.)
By Balance c/d - Closing 1,50,000
stock
7,48,000 7,48,000
Jalandhar Branch Stock Adjustment Account
Particulars ` Particulars `
To Goods sent to Branch A/c 12,000 By Balance b/d 25,000
(1/5 of `60,000) (on returns) (20% of 1,25,000)
To Branch Stock A/c (abnormal 1,200 By Goods sent to Branch 1,22,400
Loss) (6,000x1/5) A/c (1/5 of ` 6,12,000)
To Branch Stock A/c (Normal 12,000
Loss)
To Balance c/d (1/5 of 30,000
` 1,50,000)
To Branch P & L A/c (Profit on 92,200
sale) – Bal fig
1,47,400 1,47,400
Goods Sent to Branch Account
Particulars ` Particulars `
To Jalandhar Branch Stock 1,22,400 By Jalandhar Branch Stock 6,12,000
Adjustment A/c A/c
To Jalandhar Branch Stock 60,000 By Jalandhar Branch Stock 12,000
A/c (Returns) Adjustment A/c
To Purchases A/c 4,41,600
6,24,000 6,24,000
Branch Debtors Account
Particulars ` Particulars `
To Balance b/d 1,10,000 By Bank 3,45,000
To Branch Stock A/c 4,16,000 By Branch P&L A/c - Discount 5,500
By Branch P&L A/c - Bad Debts 9,500
By Branch Stock - Sales Returns 11,000

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By Balance c/d 1,55,000

5,26,000 5,26,000
Branch Expenses Account
Particulars ` Particulars `
To Bank A/c (Rent & Taxes) 9,000 By Branch Profit & Loss A/c 65,500
(Transfer)
To Bank A/c (Salaries & 54,000
Staff Welfare expenses)
To Bank A/c (office expenses) 2,500
65,500 65,500
Branch Profit & Loss Account for the year ending 31st March 2023
Particulars ` Particulars `
To Branch Expenses A/c 65,500 By Branch Stock Adj. A/c 92,200
To Branch Debtors A/c 5,500
To Branch Debtors A/c 9,500
To Abnormal Loss (cost) 4,800
To Net Profit transferred to
Profit & Loss A/c 6,900
92,200 92,200

Question 4
The following is the Trial Balance of Falgun Ltd., as on 31st March, 2023:
Particulars Debit Amt. Credit Amt.
in (`) in (`)
Equity Share Capital (Fully paid-up shares of ` 100 each) 10,00,000
10% Preference Share Capital of Face Value ` 100 each 4,00,000
General Reserve 2,85,000
2,000 10% Debentures of ` 100 each 2,00,000
Securities Premium Account 50,000
Land (at Cost) 7,00,000
Plant and Machinery 14,70,000
Furniture 4,00,000

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Provision for Depreciation - Plant and Machinery 3,00,000

Provision for Depreciation - Furniture 1,90,000
Trade Receivables 3,10,000
Trade Payables 72,000
Cash-in-Hand 1,34,000
Cash-at-Bank 3,05,000
Bank Over Drafts from Nationalized bank (Long Term) 2,00,000
(Secured by Hypothecation of Stocks)
6% Secured Loan from State Finance Corporation (repayable 4,50,000
after 3 years) (Secured by Hypothecation of Plant and
Machinery)
Unclaimed Dividend 23,000
Loan from Director (Short Term) 1,00,000
Adjusted Purchases 2,25,000
Closing Stock 1,12,000
Sales 8,46,000
Carriage Inward 17,200
Miscellaneous Expenses 10,200
Selling and Distribution Expenses 46,600
Depreciation 1,80,000
Salaries 72,000
Director's Fees 40,000
Travelling Expenses (include ` 50,000/- for foreign tour) 1,30,000
Profit and Loss Account 40,000
Office Expenses 28,000
Rent Received 24,000
Total 41,80,000 41,80,000
Additional Information:
(i) Authorized Capital - divided into -
(a) 20,000 equity shares of ` 100 each.
(b) 10,000 10% preference shares or ` 100 each
(ii) Equity shares include, 2,500 equity shares issued for consideration other than cash.

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(iii) The company has land professionally valued and decides to include it in the Balance sheet
at its valuation of ` 8,50,000.
(iv) It is proposed to capitalize part of the undistributed profits by making bonus issue to the
shareholders by allocating one equity share of ` 100 each for every 5 shares held.
(v) Trade Receivables of ` 46,000 are due for more than six· months.
There is no doubtful amount.
(vi) Depreciation expenses include depreciation of ` 1,10,000 on Plant and Machinery and that
of ` 70,000 on Furniture.
(vii) Cash-at-Bank include ` 55,000 with Desire Bank Ltd., which is not scheduled Bank.
(viii) Miscellaneous expenses included ` 5,000 being audit fees paid to auditors.
(ix) Bill Receivables for ` 35,000 maturing on 31 st July, 2023 has been discounted.
(x) Balance of secured loan from State Finance Corporation is inclusive of ` 36,000 for interest
accrued but not due.
(xi) Directors declared final dividend @ 8% on 6th April, 2023, transferring any amount that
may be required from General Reserve. Ignore Taxation.
(xii) Interest on debenture for the year is outstanding as on 31st March, 2023. You are required
to prepare Balance Sheet as on 31st March, 2023 and Statement of Profit and Loss with
Notes to Accounts for the year ending 31st March, 2023 as per Schedule III of the
Companies Act, 2013. Ignore previous years' figures. (Ignore taxation).
(All workings should form part of the answer) (20 Marks)
Answer
Statement of Profit and Loss of Falgun Ltd.
for the year ended 31st March, 2023
Particulars Notes `
I. Revenue from operations 8,46,000
II. Other income (Rent income) 24,000
III. Total Income (I + II) 8,70,000
IV. Expenses:
Cost of materials consumed / Cost of purchases 9 2,42,200
Changes in inventories of finished goods, work-in-progress -
and Inventory-in-Trade
Employee benefits expense 10 72,000

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Finance costs (Interest on debentures) 11 20,000

Depreciation and amortization expenses 12 1,80,000
Other expenses 13 2,54,800
Total expenses 7,69,000
V. Profit (Loss) for the period (III - IV) 1,01,000

Balance Sheet of Falgun Ltd. as at 31st March, 2023

Particulars Note No `
Equity and Liabilities
1 Shareholders' funds
a Share capital 1 14,00,000
b Reserves and Surplus 2 6,26,000
2 Non-current liabilities
a Long-term borrowings 3 8,14,000
3 Current liabilities
a Short term borrowings 4 1,00,000
b Trade Payables 72,000
c Other current liabilities 5 79,000
d Short term provisions
Total 30,91,000
ASSETS
1 Non-current assets
a Property, plant and equipment 6 22,30,000
2 Current assets
a Inventories 1,12,000
b Trade receivables 7 3,10,000
c Cash and bank equivalents 8 4,39,000
d Short term loans & advances
Total 30,91,000
Note: There is a Contingent Liability for bills discounted but not yet matured amounting
` 35,000.

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Notes to accounts:
`
Share Capital
1 Authorised capital:
10,000, 10% preference shares of ` 100 10,00,000
20,000 Equity shares of ` 100 each 20,00,000
30,00,000
Issued and subscribed capital:
4,000, 10% preference shares of ` 100 each fully paid 4,00,000
10,000 Equity shares of ` 100 each, fully paid 10,00,000
(of the above 2,500* shares have been issued for 14,00,000
consideration other than cash)
2 Reserves and Surplus
Securities premium 50,000
Revaluation reserve 1,50,000
General Reserve 2,85,000 4,85,000
Surplus (Profit & Loss balance)
Opening balance 40,000
Profit for the year 1,01,000 1,41,000
Total 6,26,000
3. Long-term borrowings
Debentures
2,000 10% Debentures of ` 100 each 2,00,000
Secured: Term Loans
6% Loan from State Finance Corporation [repayable after 4,14,000
3years (` 4,50,000 - ` 36,000 for interest accrued but not
due)] (secured by hypothecation of Plant and machinery)
Others
Bank overdraft from Nationalized bank (secured by 2,00,000
hypothecation of stocks)
Total 8,14,000
4. Short-term borrowings
Loan from Directors 1,00,000

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5 Other current liabilities

Unclaimed dividend 23,000
Interest on Debentures 20,000
Interest accrued but not due on loans (SFC) 36,000 79,000
6 Property, plant and equipment
Land 7,00,000
Add: Revaluation Adjustment 1,50,000 8,50,000
Plant & Machinery 14,70,000
Less: Provision for depreciation (3,00,000) 11,70,000
Furniture 4,00,000
Less: Provision for depreciation (1,90,000) 2,10,000
Total 22,30,000
7 Trade receivables
Debts outstanding for a period exceeding six months 46,000
Other Debts 2,64,000
3,10,000
8 Cash and cash equivalents
Cash at bank with Scheduled Banks (3,05,000-55,000) 2,50,000
with others 55,000
Cash in hand 1,34,000 4,39,000
9 Cost of materials consumed/Cost of purchases
Adjusted purchases 2,25,000
Carriage inward 17,200 2,42,200
10 Employee benefit expense
Salaries 72,000
11 Finance cost
Debenture interest 20,000
12 Depreciation and amortization expenses
Plant and Machinery 1,10,000
Furniture 70,000
1,80,000
13 Other expenses
Misc. expenses (10,200-5,000) 5,200

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Audit fee 5,000

Selling & Distribution expenses 46,600
Director’s fee 40,000
Travelling expenses (including foreign tour) 1,30,000
Office expenses 28,000 2,54,800
Notes:
1. The final dividend will not be recognized as a liability at the balance sheet date (even if
it is declared after reporting date but before approval of the financial statements) as per
Accounting Standards. Hence, it has not been recognized in the financial statements for
the year ended 31 March, 2023. Such dividends will be disclosed in notes only.
2. Since Bonus issue is in proposal state, no adjustment has been made in the given
answer.
Question 5
(a) Mr. Gurmeet runs the retail business and maintain books under single entry system. He
has furnished the following information:
Balance Sheet as on 31 st March, 2022
Amount (`)
Assets:
Furniture 60,000
Stock 1,15,000
Trade Receivables 65,000
Cash at Bank 1,05,000
Cash in Hand 8,000
Total 3,53,000
Liabilities:
Gurmeet's Capital A/c 3,08,000
Trade Payables 45,000
Total 3,53,000
(i) Goods are invariably sold to earn a gross profit of 20% on cost.
(ii) Depreciation is provided on furniture @ 10% p.a. on diminishing balance.
(iii) Payment for purchases is always made by cheque.
(iv) Goods are sold for cash and credit both. Credit customers are paid by cheque only.

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(v) It is practice of Mr. Gurmeet to send to the bank all collection of the month at last date
of each month after paying:
Salaries ` 3,000 p.m.
Office expenses ` 1,800 p.m.
Personal withdrawals ` 1,500 p.m.
(vi) Analysis of passbook for the year ending 31st March, 2023 disclosed the following
information:
Amount (`)
Cash deposited in bank during the year 2,12,000
Receipts from credit customers 12,28,000
Payment to creditors 12,15,000
Payment of insurance premium (for one year ending 30th June, 2,400
2023)
Miscellaneous Receipts - sale of old papers 1,400
(vii) Balances as on 31 st March, 2023 are:
Trade Receivables ` 17,000
Trade Payable ` 35,000
Stock ` 90,000
(viii) Claim against Mr. Gurmeet for damages of ` 15,000 is under dispute. He anticipates
defeat in the suit.
(ix) On physical verification of cash in cash box carried on 31st March, 2023; shortage of
` 10,000 was found. It was noticed that the cashier absconded with-the shortage
amount. Further, it is not possible to recover cash from cashier.
You are required to prepare:
(i) Trading and Profit and Loss Account for the year ending 31st March, 2023;
(ii) Balance sheet as on 31 st March, 2023.
(All workings should form part of the answer)
(b) Discuss Disclosure requirements in following cases as per AS 1.
(i) Accountant of A Ltd. charges a probable loss of losing a suit in books of accounts
and also disclosed the same fact in financial statements. The probability of losing the
suit is 25%.
(ii) Accountant of A Ltd. capitalized all the revenue expenses of repair and maintenance
during the year to Plant & Machinery and is also disclosing the same as company
policy in financial statements.

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(iii) A Ltd. has followed accrual basis of accounting since incorporation. The chief
accountant also disclosed this fact in financial statements.
(iv) A Ltd. was providing for after sales expenses @ 2% of sales for covering expenses
during the warranty period. Now A Ltd. observes that actual after sales expenses
were much less as compared to provision because of better technology used in
manufacturing of the products. Now, the Board of A Ltd. decides to account for these
expenses as and when they occur. Sales during the period are ` 50 crores.
(15 + 5 = 20 Marks)
Answer
(a) Trading and Profit and Loss Account of Mr. Gurmeet
for the year ended 31st March, 2023
Particulars ` Particulars `
To Opening stock 1,15,000 By Sales 14,76,000
Cash 2,96,000
Credit 11,80,000
To Purchases 12,05,000 By Closing stock 90,000
To Gross Profit c/d 2,46,000
15,66,000 15,66,000
To Salaries (` 3,000 x 12) 36,000 By Gross profit b/d 2,46,000
To Office expenses (`1,800 x 12) 21,600 By Misc. receipt 1,400
To Insurance premium 2,400 1,800
Less: Prepaid 600
To Depreciation on furniture 6,000
To Provision for suit 15,000
To Loss of cash by theft 10,000
To Net Profit (b.f.) 1,57,000
2,47,400 2,47,400
Balance Sheet of Mr. Gurmeet
as at 31 st March, 2023
Liabilities ` Assets `
Capital as on 3,08,000 Furniture 60,000
1.4.2022 Less: depreciation (6,000) 54,000
Add: Profit 1,57,000 Stock 90,000
4,65,000 Trade receivables 17,000
Less: Drawings (18,000) 4,47,000 Prepaid insurance 600

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Trade payables 35,000 Cash at bank 3,29,000

Provision for suit 15,000 Cash in hand (W.N 6) 6,400
4,97,000 4,97,000
Working Notes:
(1) Purchases
Trade payables Account
Particulars ` Particulars `
To Bank A/c 12,15,000 By Balance b/d 45,000
To Balance c/d 35,000 By Purchases A/c (Bal. fig.) 12,05,000
12,50,000 12,50,000
(2) Total sales
Particulars `
Opening stock 1,15,000
Add: Purchases 12,05,000
13,20,000
Less: Closing stock (90,000)
Cost of goods sold 12,30,000
Add: Gross profit @ 20% on cost 2,46,000
Total Sales 14,76,000
(3) Credit Sales
Trade receivables Account
Particulars ` Particulars `
To Balance b/d 65,000 By Bank A/c 12,28,000
To Sales A/c (Bal. fig.) 11,80,000 By Balance c/d 17,000
12,45,000 12,45,000
(4) Cash Sales
`
Total sales 14,76,000
Less: Credit Sales (11,80,000)
Cash sales 2,96,000

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(5) Bank balance as on 31.3.2023

Bank Account
Particulars ` Particulars `
To Balance b/d 1,05,000 By Trade payables A/c 12,15,000
To Trade receivables A/c 12,28,000 By Insurance premium 2,400
A/c
To Misc. receipts (sale of 1,400
newspaper)
To Cash A/c 2,12,000 By Balance c/d (b.f.) 3,29,000
15,46,400 15,46,400
(6) Cash balance as on 31.3.2023
Cash Account
Particulars ` Particulars `
To Balance b/d 8,000 By Salaries 36,000
(` 3,000 x 12)
To Cash sales 2,96,000 By office expenses (`1,800 x 12) 21,600
By Deposit into bank 2,12,000
By Loss of cash by theft 10,000
By Drawings 18,000
By Balance c/d (b.f.) 6,400
3,04,000 3,04,000
(b) (i) In this case, accountant of company created a provision for damages of probability of
losing a suit by a charge against profits. Unless the probability of losing the suit is
more than probability of not losing it, there should not be any creation of provis ion for
such probable losses. So there is no need to charge such loss against profit and
disclosing the same in financial statements.
(ii) Repairs and maintenance are revenue expenditure and should not be added to the
value of assets, as these expenses do not increase the capacity of asset. Hence such
expenses should be charged to profit & loss statement.
Further the chief accountant also disclosed its policy of adding repairs to value of
assets by way of notes to accounts. As per AS 1 disclosure is not a method to correct
the wrong treatments. So the contention of chief accountant is wrong.
(iii) Accrual is one of the Fundamental accounting assumptions. If fundamental
accounting assumptions are followed properly then no specific disclosure is required.

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Disclosure is required only when there is deviation and the company is not following
fundamental accounting assumptions. So the company need not disclose this in
financial statements.
(iv) As per AS 1, any change in the accounting policies which has a material effect in the
current period or which is reasonably expected to have a material effect in later
periods should be disclosed. Accordingly, the notes on accounts should properly
disclose the change and its effect.
Note: So far, the company has been providing 2% of sales for meeting after sales
expenses during the warranty period. Now the company has improved the quality of
its products with better technology and has been observing that actual expenses are
very less than the provision, Hence, the company has decided not to make provision
for such expenses but to account for the same as and when expenses are incurred.
Due to this change, the profit for the year is increased by `1 crore than would have
been the case if the old policy were to continue.
Question 6
Answer the followings:
(a) Following is the Profit and Loss Account of Erick Ltd. for the year ended 31 st March, 2023:
Amount (`)
Income:
Gross Profit 26,20,500
Profit on Sale of Land 1,20,000
Subsidy received from State Government 3,00,000
Total 30,40,500
Expenses:
Administrative and Selling Expenses 58,500
Salaries and Wages 5,80,000
Director's Fees 32,000
Development Rebate Reserve 15,000
Depreciation 4,80,000
Managerial Remuneration 1,25,000
Income Tax 2,40,000
Interest on Debentures 90,000
Total 16,20,500
Net Profit c/f 14,20,000
Total 30,40,500

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Additional Information:
(i) Administrative and selling expenses include the cost of construction of new office
building amounting to ` 8,000.
(ii) Depreciation as per Companies Act, 2013 was ` 3,95,000.
You are required to calculate the maximum limits of the managerial remuneration as per
Companies Act, 2013. (5 Marks)
EITHER
(b) Z Ltd. decides to increase its existing share capital by making right issue to its existing
shareholders.
The company is offering 2 new shares for every 5 existing shares held by the shareholders.
The market value of shares is ` 420 per share.
Company is offering each share at ` 245 per share.
Calculate the value of right and the ex-right market price of a share. (5 Marks)
OR
List down the applicable criteria under the companies (Accounting Standards) Rule, 2021,
to classify a company as Small and Medium Sized Company (SMC).
(c) Vision Ltd. was incorporated on 1st June, 2022 to take over the running business of Dwar
Brothers with effect from 1st April 2022. The following information for the year ended
31st March, 2023 is provided:
Amount (`)
Gross Profit 32,63,000
Expenses:
Rent, Rates and Taxes 6,72,000
General expenses 10,96,000
Carriage outward 1,92,400
Share issue expenses 55,000
Additional information:
• Monthly sales from 1 st April, 2022 to 30 th September, 2022 were evenly spread and
monthly sales thereafter increased by two third during rest of the year.
• General expenses include ` 1,96,000 towards sales promotion.
• All investments were sold on 15 th June, 2022 at a profit of ` 63,000. Profit on the sale
of investment was inadvertently included in gross profit.
You are required to:
(i) Calculate the time ratio and the sales ratio.

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(ii) Prepare a Statement ascertaining Pre-incorporation and Post-Incorporation

Profits/Losses for the year ending 31-03-2023. (10 Marks)
Answer
(a) Calculation of net profit u/s 198 of the Companies Act, 2013
Particulars ` `
Gross profit 26,20,500
Add: Subsidy received from Government 3,00,000
29,20,500
Less: Administrative and selling expenses (58,500-8,000) 50,500
Salaries and wages 5,80,000
Director’s fees 32,000
Interest on debentures 90,000
Depreciation on PPE as per Companies Act 3,95,000 (11,47,500)
Profit u/s 198 17,73,000
Maximum Managerial remuneration under Companies Act, 2013
= 11% of `17,73,000 = `1,95,030
Alternatively,
Particulars ` `
Net Profit as per Statement of Profit and Loss 14,20,000
Add Back:
Capital Expenditure included in Adm & Selling Expenses 8,000
Development Rebate Reserve 15,000
Depreciation in excess of Companies Act (4,80,000-3,95,000) 85,000
Managerial Remuneration 1,25,000
Income Tax 2,40,000 4,73,000
Total 18,93,000
Less: Profit on Sale of Land (1,20,000)
Profit u/s 198 17,73,000
Maximum Managerial remuneration under Companies Act, 2013
= 11% of `17,73,000 = `1,95,030

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 30 INTERMEDIATE EXAMINATION: NOVEMBER 2023

(b) Ex-right value of the shares = (Cum-right value of the existing shares + Rights shares X
Issue Price) / (Existing Number of shares + No. of right shares)

= (`420 X 5 Shares + `245 X 2 Share) / (5 + 2) Shares

= ` 2,590 / 7 shares = `370 per share.

Value of right = Cum-right value of the share – Ex-right value of the share

= `420 – `370 = `50 per share

Note: In the question, the market value of share is given at ` 420 per share. It has been
considered that this value is cum right.
OR
Criteria for classification of Companies under the Companies (Accounting Standards)
Rules, 2021 to classify a company as Small and Medium-Sized Company (SMC):
“Small and Medium Sized Company” (SMC) means, a company-
(i) whose equity or debt securities are not listed or are not in the process of listing on
any stock exchange, whether in India or outside India;
(ii) which is not a bank, financial institution or an insurance company;
(iii) whose turnover (excluding other income) does not exceed rupees two-fifty crores in
the immediately preceding accounting year;
(iv) which does not have borrowings (including public deposits) in excess of rupees fifty
crores at any time during the immediately preceding accounting year; and
(v) which is not a holding or subsidiary company of a company which is not a small and
medium-sized company
(c) Calculation of time ratio and sales ratio
Time ratio
Pre incorporation period : 1 st April, 22 to 31 st May, 22 i.e. 2 Months
Post incorporation period : 10 months
Time ratio = 2:10 = 1:5
Sales ratio
Let the monthly sales for first six months = x
Sales for pre-incorporation period = 2x
2
Monthly sales for next six months =  x + x  X 6
 3 
= 5/3 x X 6= 10x

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 PAPER – 1 : ACCOUNTING 31

Sales for post-incorporation period = 4x+10x

= 14x
Sales ratio = 2:14 = 1:7
Statement showing calculation of profits for pre and post incorporation periods for
the year ended 31.3.2023
Particulars Pre-incorporation Post- incorporation
period period
` `
Gross profit (1:7) 4,00,000 28,00,000
Add: Profit on Sale of Investments 63,000
28,63,000
Less: Rent, rates & taxes (1:5) 1,12,000 5,60,000
General Expenses (1:5) 1,50,000 7,50,000
Sales promotion expenses (1:7) 24,500 1,71,500
Carriage outward (1:7) 24,050 1,68,350
Share issue expenses - 55,000
Net profit/ loss 89,450 11,58,150

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 PAPER – 1 : ACCOUNTING
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions may be made and indicated in answer by the
candidates.
Working Notes should form part of the answer.
Question 1
Answer the following Questions:
(a) Following information of Sarah Limited is given:
Sarah Limited uses Raw Material ‘A’ for production of production of Finished Goods ‘B’
Closing balance of Raw Material ‘A’ in units on 31st March,2022 750
Price Per Unit in `
Cost Price 150
Freight inward 10
Replacement Cost 152
Closing balance of Finished Good ‘B’ in units on 31 st March,2022 1,600
Price Per Unit in `
Material Consumed 225
Direct Labour 75
Direct variable overhead 60
Total Fixed Overheads amounts to ` 1,00,000 on normal capacity of 20,000 units.
You are required to calculate the value of Closing Stock of Raw materials and Closing
Stock of Finished Goods, as on 31 st March, 2022, as per AS 2, when selling price of
Finished Goods ‘B’ is ` 360 per unit.
(b) Ridgeway Limited, a Non-Financial company has the following activities:
(i) Dividend paid for the year.
(ii) TDS on interest income earned on investments made.
(iii) Loans and advances given to suppliers and interest earned from them.
(iv) Deposit with bank for a term of two years.
(v) Highly liquid Marketable Securities (without risk of change in value).
(vi) Investments made and dividends earned on them.
(vii) Insurance claims received against loss of stock or loss of profits.

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 2 INTERMEDIATE EXAMINATION: NOVEMBER 2022

(viii) Loans and advances given to subsidiaries and interest earned from them.
(ix) Issue of Bonus Shares.
(x) Term loan repaid.
You are required to classify the above activities in Cash Flow Statement as per ‘AS-3’.
(c) (i) Jared Limited purchased a Machine for US $ 20,000 on 31 st December, 2021 payable
after four months. It entered into a forward contract for four months @ ` 78.85 per
US $. On 31st December,2021 the exchange rate was ` 77.50 per US $.
How will you recognize the Profit or Loss on Forward Contract for the year ended
31st March,2022 in the books of Jared Limited?
(ii) Trade Payables of Jared Limited includes amount due to Sterling Limited ` 9,75,000
recorded at the prevailing exchange rate on the date of purchase; transaction
recorded at US $ 1 = ` 75.00. The exchange rate on Balance Sheet date
(31st March,2022) was US $ 1 = 79.00 The payment was made on 1 st May,2022 when
the exchange rate was US $ 1 = ` 78.30.
You are required to calculate the amount of exchange difference on 31 st March, 2022
and 1st May, 2022 and also explain the accounting treatment needed in the above
case as per AS 11 in the books of Jared Limited.
(d) (i) An unquoted long term investment made in the shares of Rachel Limited is carried in
the books of Ziva Limited at a cost of ` 1,00,000. The audited financial statements of
Rachel Limited received in May,2021 showed that the company had been incurring
cash losses with declining market share and the long term investment may not fetch
more than ` 55,000.
(ii) On 1st December, 2021 Ziva Limited had made an investment of ` 5,00,000 in 4,000
Equity Shares of Garry Limited at a price of ` 125 per share with an intention to hold
it for not more than six months. In the first week of March, 2022, Garry Limited
suffered heavy loss due to an earthquake; the loss was not covered by an insurance
policy. On 31 st March,2022, the shares of Garry Ltd. were traded at a price of ` 80
per share on the Stock Exchange.
How would you deal with the above investments in the books of Ziva Limited for the
year ended 31st March,2022 as per the provisions of Accounting Standard 13
‘Accounting for Investments’? ( 4 Parts x 5 Marks= 20 Marks)
Answer
(a)
Raw Material A `
Cost Price 150
Add: Freight Inward 10

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 PAPER – 1 : ACCOUNTING 3

Cost per unit 160

Replacement cost per unit of raw material 152
As per AS 2 (Revised) “Valuation of Inventories”, the inventories are to be valued at lower
of cost or net realizable value. Materials and other supplies held for use in the production
of inventories are written down below cost if the selling price of finished product containing
the material does not exceed the cost of the finished product. In the given case, net
realizable value of the Product ‘B’ (Finished Goods) is ` 360 per unit which is less than its
cost ` 365 per unit. Raw Material is to be valued at replacement cost.
Value of the closing stock of raw material on 31/03/2022 would be ` 1,14,000 (750 units
X `152 per unit).
Finished Goods B `
Materials consumed 225
Direct Labour 75
Direct Variable overheads 60
Fixed overheads (` 1,00,000/20,000 units) 5
Cost per unit 365
Net realizable value per unit 360
As per AS 2 (Revised) “Valuation of Inventories”, the inventories are to be valued at lower
of cost or net realizable value. Hence, Finished Goods are to be valued at NRV since NRV
is less than the cost.
Value of the closing stock of Finished goods as on 31/03/2022 would be ` 5,76,000 (1,600
units X ` 360 per unit).
(b)
No. Activities
(i) Dividend paid for the year Financing
(ii) TDS on interest income earned on investments Investing
made
(iii) Loans and advances given to suppliers and Operating
interest earned from them
(iv) Deposit with bank for a term of two years Investing
(v) Highly liquid Marketable Securities (without risk Cash Equivalent
of change in value)
(vi) Investments made and dividends earned on Investing
them
(vii) Insurance claims received against loss of stock Operating

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 4 INTERMEDIATE EXAMINATION: NOVEMBER 2022

or loss of profits
(viii) Loans and advances given to subsidiaries and Investing
interest earned from them
(ix) Issue of Bonus Shares No Cash Inflow/Cash outflow
(x) Term Loan repaid Financing
(c) (i) `
Forward Rate 78.85
Less: Spot Rate (77.50)
Premium on Contract 1.35
Contract Amount US$ 20,000
Total Loss (20,000 x 1.35) ` 27,000
Contract period 4 months (3 months falling in the year ended 31 st March, 2022)
Loss to be recognized (`27,000x 3/4) = ` 20,250 in the year ended 31 st March, 2022.
(ii) As per AS 11 “The Effects of Changes in Foreign Exchange Rates”, exchange
differences arising on the settlement of monetary items or on reporting an enterprise’s
monetary items at rates different from those at which they were initially recorded
during the period, or reported in previous financial statements, should be recognized
as income or as expenses in the period in which they arise.
Trade payables Foreign Currency Amount
Rate `
Initial recognition US $13,000 (9,75,000/75) 1 US $ = ` 75
Exchange Rate on Balance sheet date 1 US $ = ` 79
Exchange Difference Loss US $ 13,000 X (79-75) 52,000
Exchange Rate on Settlement date 1 US $ = ` 78.30
Exchange Difference Profit US $ 13,000x(79-78.30) 9,100
For the year ended 31 st March, 2022 exchange diffefence loss amounting ` 52,000
will be charged to statement of Profit & Loss A/c.
However, there is exchange difference gain of ` 13,000 x (79-78.30) = 9,100 on 1 st
May, 2022. Thus gain of ` 9,100 will be credited to statement of Profit & Loss A/c for
the year ended 31 st March, 2023.
(d) (i) Investments classified as long -term investments should be carried in the financial
statements at cost. However, provision for diminution should be made to recognize a
decline, other than temporary, in the value of the investments, such reduction being

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 PAPER – 1 : ACCOUNTING 5

determined and made for each investment individually.

On this basis, the facts of the given case, it would be appropriate to reduce the
carrying value of Long-term investments to ` 55,000 in the financial statements for
the year ended 31 st March, 2022.Thus the unquoted investment in the shares of
Rachel Ltd. will be valued at ` 55,000
The provision for diminution amounting ` 45,000 should be made to reduce the
carrying amount of the investments.
(ii) Equity Shares in Garry Ltd. will be considered as current investment as intended to
hold for not more than six months. As per AS 13, “Accounting for Investments”,
carrying amount for current investments is the lower of cost and fair value. In respect
of current Investments for which as active market exists, market value generally
provides the best evidence of fair value.
Since on 31st March,2022, the shares of Garry Limited were trading at a price of ` 80
per share on the stock exchange, the equity shares of Garry Ltd. should be carried in
the financial statements at realizable value i.e. at ` 3,20,000 (4,000 shares @ ` 80
per share).The reduction of ` 1,80,000 in carrying value of current investment will be
charged to the statement of profit and loss for the year ended 31 st March,2022.
Question 2
(a) A fire occurred in the premises of M/s Preet Enterprises on the night of 28th September,
2022. The firm has taken an Insurance Policy for ` 5,00,000 which is subject to average
clause. The value of goods salvaged was estimated at ` 62,500. The firm continues to
maintain the same rate of Gross Profit as during the preceding year.
The following information were available:
Particulars `
(i) Stock at Cost on April, 2021
1 st 5,25,000
(ii) Stock at Cost on 31 st March, 2022 4,20,000
(iii) Purchases for the year ended 31 st March, 2022 37,35,000
(iv) Sales for the year ended 31 st March, 2022 48,00,000
(v) Purchases from 1st April,2022 to 28 th September, 2022 27,22,000
(vi) Sales from 1 st April, 2022 to 28 th September, 2022 33,30,000
Additional Information:
(i) Purchase up to 28th September,2022 did not include ` 1,20,000 for which purchase
invoice had not been received from suppliers though the goods had been received in
the warehouse.
(ii) Sale value of goods distributed for advertisement from 1st April,2022 to 28th
September,2022 is ` 90,000.

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 6 INTERMEDIATE EXAMINATION: NOVEMBER 2022

(iii) Sales up to 28thSeptember, 2022 include ` 90,000 for which the goods had not been
dispatched.
(iv) On 1st July,2022, goods worth ` 1,50,000 was sold to Ram and Co. on approval basis
which was included in the sales but no approval had been received for 2/3 rd of the
goods sold to them till 28th September,2022.
You are required to ascertain the amount of claim to be lodged with the Insurance Company
for Loss of Stock. (10 Marks)
(b) Mr. Saurabh held 10,000 equity shares of BT Limited on 1st April,2021. Nominal value of
the shares is ` 2 each and their book value is ` 7 per share.
− On 4th July,2021 he purchased another 7,500 shares at ` 10 each.
− On 31st July 2021 the company announced a Bonus and Right issue.
− Bonus was declared of one share for every five shares held and was received on
5th August,2021.
− Right issue to be issued on 12th September,2021, which entitled the holders to
subscribe to additional 2 shares for every 7 shares held at ` 2 per share.
Shareholders were entitled to transfer their rights in full or part. Mr. Saurabh sold
whole of his entitlements to Mr. Nihal at ` 1.50 per share.
− Dividend was declared for the year ended 31st March,2021 @ 25% and received by
Mr. Saurabh on 19th September 2021.
− On 11th December 2021 Mr. Saurabh sold 7,500 shares at ` 8 per share.
− The market price of the shares on 31st March,2022 was ` 7 per share.
You are required to prepare the Investment Account of Mr. Saurabh on 31st March,2022
considering the above mentioned points, also state the value of shares held on that date.
(Assume investment as current investment) (10 Marks)
Answer
(a) Computation of claim for loss of stock
`
Stock on the date of fire (i.e. on 28.9.2022) 5,98,000
Less: Stock salvaged (62,500)
Stock destroyed by fire (Loss of stock) 5,35,500
Amount of claim:
Insured value
= × loss of stock
Total cost of stock on the date of fire

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 PAPER – 1 : ACCOUNTING 7

(Average clause is applicable as insurance policy amount (` 5,00,000) is less than the
value of closing stock ie. ` 5,98,000)
5,00,000/5,98,000 X 5,35,500 = ` 4,47,742 (rounded off)
Trading Account for the year ended 31.3.2022
Particulars (`) Particulars (`)
To Opening stock 5,25,000 By Sales 48,00,000
To Purchases 37,35,000 By Closing Stock at cost 4,20,000
To Gross Profit 9,60,000
52,20,000 52,20,000
Rate of gross profit = 9,60,000 = 20%
48,00,000

Memorandum Trading A/c

(1.4.22 to 28.9.22)
Particulars (`) Particulars (`)
To Opening stock 4,20,000 By Sales (W.N. 2) 31,40,000
To Purchases ` 27,22,000 By Goods with 80,000
Add: Purchase for which customers* (for approval)
invoice not received `1,20,000 28,42,000 (W.N.1)
To Gross profit 6,28,000 By cost of goods distributed** 72,000
(` 31,40,000 x 20%)
By Closing stock (bal. fig.) 5,98,000
38,90,000 38,90,000
* For financial statement purposes, this would form part of closing stock (since there is no sale).
However, this has been shown separately for computation of claim for loss of stock since the
goods were physically not with the entity and, hence, there was no loss of such stock.
** This may alternatively be shown as deduction from purchases on the debit side of the
Memorandum Trading Account.
Working Notes:
1. Calculation of goods with customers
Since no approval for sale has been received for the goods of ` 1,00,000 (i.e. 2/3 of
` 1,50,000) hence, these should be valued at cost i.e. ` 1,00,000 – 20% of ` 1,00,000
= ` 80,000.

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 8 INTERMEDIATE EXAMINATION: NOVEMBER 2022

2. Calculation of actual sales

Total sales – Goods not dispatched - Sale of goods on approval (2/3 rd)
= Sales (` 33,30,000 – ` 90,000 – ` 1,00,000) = ` 31,40,000
(b) Investment Account in Books of Saurabh
(Script: Equity Shares in BT Ltd.)
No. Divi- Amount No. Divi- Amount
dend dend
` `
1.4.21 To Bal b/d 10,000 70,000 19.9.2021 By Bank 5,000 3,750
(dividend
4.7.21 To Bank 7,500 75,000 on shares
acquired on
4.7. 2021)
5.8.21 To Bonus 3,500 0
11.12.21 To P&L A/c 9,554 11.12.2021 By Bank 7,500 60,000
(Profit
on sale of (Sale of
shares) shares)
31.3.22 To P&L A/c 5,000 31.3.2022 By Bal. c/d 13,500 90,804
21,000 5,000 1,54,554 21,000 5,000 1,54,554

Working Notes:
(10,000 + 7,500 + 3,500 ) × 2
(1) Right Shares = = 6,000
7
Sale of rights amounting ` 9,000 (` 1.5 x 6,000 shares)
It will not be shown in investment A/c but will directly be taken to P & L statement.
(2) Profit on sale of 7,500 shares
= Sales proceeds – Average cost
Sales proceeds = ` 60,000
Average cost = (70,000 + 75,000 – 3,750) /21,000 x 7,500 = ` 50,446
Profit = ` 60,000 – ` 50,446 = ` 9,554.
(3) Value of investments
Current investments are valued at lower of cost or net realizable value .
Here, cost= (70,000 + 75,000 – 3,750)/ 21,000 X 13,500 = ` 90,804
Net realizable value of the shares = ` 94,500
Therefore, value of investments will be taken lower of above i.e.` 90,804

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Note: As question is silent, Average cost basis has been considered for calculation
of cost of shares in above solution. Alternatively, FIFO method can also be considered
for calculation of cost of shares. An alternative solution is given below based on FIFO
method-
Alternative Solution
Investment Account in Books of Saurabh
(Script: Equity Shares in BT Ltd.)
No. Dividend Amount No. Dividend Amount
` `
1.4.21 To Bal b/d 10,000 70,000 19.9.21 By Bank 5,000 3,750
(dividend on
4.7.21 To Bank 7,500 75,000 shares
acquired on
4.7. 2021)
5.8.21 To Bonus 3,500 0
11.12.21 To P&L A/c 7,500 11.12.21 By Bank 7,500 60,000
(Profit
on sale of (Sale of
shares) shares)
31.3.22 To P&L A/c 5,000 31.3.22 By Bal. c/d 13,500 88,750
21,000 1,52,500 21,000 1,52,50
0

Working Notes:
(10,000 + 7,500 + 3,500 ) × 2
(1) Right Shares = = 6,000
7
Sale of rights amounting ` 9,000 (` 1.5 x 6,000 shares)
It will not be shown in investment A/c but will directly be taken to P & L statement.
(2) Profit on sale of 7,500 shares
= Sales proceeds – Cost
Sales proceeds = ` 60,000
Cost = 7,500 X ` 7= ` 52,500
Profit = ` 60,000 – ` 52,500 = ` 7,500.
(3) Value of investments
Current investments are valued at lower of cost or net realizable value
Here, cost= (2500 X`7) + (7500 X`10) -`3750 = ` 88,750
Net realizable value of the shares = ` 94,500
Therefore, value of investments will be taken lower of above i.e.` 88,750

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 10 INTERMEDIATE EXAMINATION: NOVEMBER 2022

Question 3
(a) Modern Stores of Delhi operates a branch at Nagpur. The Head office affects all purchases
and the branch is charged at cost plus 60%. All the cash received by Nagpur Branch is
remitted to Delhi. The Branch expenses are met by the Branch out of an Imprest Account
which is reimbursed by the Delhi Head Office every month. The Branch maintains a Sales
Ledger and certain essential subsidiary records, but otherwise all branch transactions are
recorded at Delhi.
The following branch transactions took place during the year ended 31 st March, 2022:
`
Goods received from Delhi at Selling Price 1,50,000
Cash Sales 69,000
Goods returned to Delhi at Selling Price 3,000
Credit Sales (Net of returns) 63,000
Authorized Reduction in Selling Price of Goods Sold 1,500
Cash Received from Debtors 48,000
Debtors written off as irrecoverable 2,000
Cash Discount allowed to Debtors 1,500
− On 1st April, 2021 the Stock in trade at the Branch at Selling Price amounted to
` 60,000 and the Debtors were ` 40,000.
− A consignment of goods sent to the Branch on 27 th March,2022 with a Selling Price
of ` 1,800 was not received until 5 th April,2022 and had not been accounted for in
stock.
− The Closing Stock at Selling Price was ` 72,900.
− The expenses relating to the Branch for the year ended 31 st March,2022 amounted
to ` 18,000.
You are required to prepare the Branch Stock Account, Branch Debtors Account, Branch
Adjustment Account and Branch Profit and Loss Account maintained at Delhi under Stock
and Debtors method. Any stock unaccounted for is to be regarded as normal wastage.
(10 Marks)
(b) Ramesh had ` 3,30,000 in the bank account on 1st January,2021 when he started his
business. He closed his accounts on 31 st March, 2022. His single-entry books (in which he
did not maintain any bank account for the bank) showed his position as follows:
31.3.2021 31.3.2022
Stock 20,900 31,900
Debtors 1,100 3,200

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Cash 2,200 3,300

Creditors 5,500 4,300
On and from 1st February,2021, he began drawings at ` 770 per month for his personal
expenses from the cash box of the business. His account with the bank had the following
entries:
Deposits Withdrawals
1.1.2021 to 31.3.2021 - 2,45,300
1.4.2021 to 31.3.2022 2,53,000 2,97,000
− The above withdrawals included payment by cheque of ` 2,20,000 and ` 66,000
during the period from 1 st January, 2021 to 31 March,2021 and from 1st April,2021 to
31st March,2022 respectively for the purchase of Machines for the business.
− The deposits after 1 st January, 2021 consisted wholly of sale proceeds received from
the customers by cheques.
− One customer (Suresh) had directly deposited a cheque of ` 2,700 on 25 th March,
2022 into bank account of Ramesh. Ramesh has no knowledge of this and this cheque
is not included in the deposits for the period 1st April 2021 to 31 st March 2022 given
above.
You are required to draw up Ramesh's Statement of Affairs as at 31 st March, 2021 and
31st March, 2022 respectively and work out his Profit or Loss for the year ended 31 st March,
2021 and 31 st March, 2022. (10 Marks)
Answer
(a) Books of Modern Store Delhi
Nagpur Branch Stock A/c
Particulars ` Particulars `
To Opening stock 60,000 By Bank A/c (Cash Sales) 69,000
To Goods sent to branch A/c 1,50,000 By Branch Debtors A/c (Credit 63,000
sales)
To Goods sent to branch A/c 1,800 By Goods sent to branch A/c 3,000
(Return)
By Branch adjustment A/c 1,500
(Reduction in selling price)
By Branch adjustment A/c 600
(Normal Loss)

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 12 INTERMEDIATE EXAMINATION: NOVEMBER 2022

By Closing stock (including 74,700

stock in transit of ` 1,800)
2,11,800 2,11,800
Branch Debtors A/c
Particulars ` Particulars `
To Bal. b/d 40,000 By Cash/Bank A/c 48,000
To Branch Stock (Sales) 63,000 By Branch P&L A/c (Bad 2,000
debts)
By Branch P&L A/c 1,500
(Discount)
By Bal. c/d 51,500
103,000 103,000
Branch Adjustment A/c
Particulars ` Particulars `
To Branch Stock Account By Stock reserve A/c 22,500
(Reduction in selling price) 1,500 (60,000 X 60/160)
To Branch Stock Account By Goods sent to branch A/c 56,925
(Normal loss*) 600 (Loading)
(1,51,800 X 60/160)
To Goods sent to branch A/c
(loading on returns) 1,125
(3,000 X 60/160)
To Branch P&L A/c 48,187
To Stock reserve A/c 28,013**
(74,700 X 60/160)
79,425 79,425
Note: * Alternatively, the loading of ` 225 on normal loss may be charged to Branch
Adjustment A/c and cost `375 thereof may be charged to Branch P&L A/c.
** rounded off. Alternatively may be rounded off as ` 28,012.
Branch P&L A/c
Particulars ` Particulars `
To Branch expenses A/c 18,000 By Branch Adjustment A/c 48,187
To Bad debts A/c 2,000

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 PAPER – 1 : ACCOUNTING 13

To Discount A/c 1,500

To Net Profit 26,687
48,187 48,187
(b) Statement of Affairs as on 31 st March, 2021
Liabilities ` Assets `
Capital (bal. fig.) 3,23,400 Machinery 2,20,000
Sundry creditors 5,500 Inventory 20,900
Debtors 1,100
Cash at bank (W.N.1) 84,700
Cash in hand 2,200
3,28,900 3,28,900
Calculation of loss for 3 months (1.1.2021 to 31.3.2021)
`
Capital as on 31.3.2021 3,23,400
Add: Drawings for 2 months 1,540
3,24,940
Less: Capital as on 1.1.2021 (3,30,000)
Loss for 3 months 5,060
Statement of Affairs as on 31 st March, 2022
Liabilities ` Assets `
Machinery 2,20,000
Sundry Creditors 4,300 Add: Additions 66,000 2,86,000
Inventory 31,900
Debtors (3,200 – 2,700) 500
Capital (Bal. fig.) 3,60,800
Cash at bank (W.N.2) 43,400
Cash in hand 3,300
3,65,100 3,65,100
Statement of Profit and Loss for the year ended 31.3.2022
Particulars `
Capital as on 31.3.2022 3,60,800

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 14 INTERMEDIATE EXAMINATION: NOVEMBER 2022

Add: Drawings (` 770 х 12) 9,240

3,70,040
Less: capital as on 31.3.2021 (3,23,400)
Net profit for the year ended 31.3.22 46,640
Working Notes:
`
1. Bank balance as on 31.3.2021
Balance as on 1.1.2021 3,30,000
Less: Withdrawals during 1.1.2021 to 31.3.2021 (2,45,300)
Balance as on 31.3.2021 84,700
2. Bank Balance as on 31.3.2022:
Balance as on 1.4.2021 84,700
Add: Deposits during the year (2,53,000 + 2,700) 2,55,700
3,40,400
Less: Withdrawals during the year (2,97,000)
Bank Balance as on 31.3.2022 43,400
Question 4
The following is the Trial Balance of Anmol Limited as on 31 st March, 2022:
Debit Balance Amount ( `) Credit Balances Amount (`)
Purchases 82,95,000 Sales 1,25,87,000
Wages and Salaries 12,72,000 Commission 72,500
Rent 2,20,000 Equity Share Capital 10,00,000
Rates and Taxes 50,000 General Reserve 10,00,000
Selling & Distribution 4,36,000 Surplus (P&L A/c) 01.04.2021 8,75,500
Expenses
Directors Fees 32,000 Securities Premium 2,50,000
Bad Debts 38,500 Term Loan from Public Sector 1,02,00,000
Interest on Term Loan 8,05,000 Bank
Land 24,00,000 Trade Payables 55,08,875
Factory Building 36,80,000 Provision for Depreciation:
Plant and Machinery 62,50,000 On Plant & Machinery 9,37,500
Furniture and Fittings 8,25,000 On Furniture and Fittings 82,500
Trade Receivables 64,75,000 On Factory Building 1,84,000

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Advance Income Tax Paid 37,500 Provision for Doubtful Debts 25,000
Stock (1st April,2021) 9,25,000 Bills Payable 1,25,000
Bank Balances 9,75,000
Cash on Hand 1,31,875
Total 3,28,47,875 Total 3,28,47,875

Following information is provided:

(1) The Authorized Share Capital of the Company is 2,00,000 Equity Shares of ` 10 each. The
Company has issued 1,00,000 Equity Shares of ` 10 each.
(2) Rent of ` 20,000 and Wages of ` 1,56,500 are outstanding as on 31 st March, 2022.
(3) Provide Depreciation @ 10% per annum on Plant and Machinery, 10% on Furniture and
Fittings and 5% on Factory Building on written down value basis.
(4) Closing Stock as on 31 st March, 2022 is ` 11,37,500.
(5) Make a provision for Doubtful Debt @ 5% on Debtors.
(6) Make a provision of 25% for Corporate Income Tax.
(7) Transfer ` 1,00,000 to General Reserve.
(8) Term Loan from Public Sector Bank is secured against Hypothecation of Plant and
Machinery. Installment of Term Loan falling due within one year is ` 17,00,000.
(9) Trade Receivables of ` 85,600 are outstanding for more than six months.
(10) The Board declared a dividend @10% on Paid up Share Capital on 5 th April, 2022.
You are required to prepare Balance Sheet as on 31 st March 2022 and Statement of Profit and
Loss with Note to Accounts for the year ending 31 st March, 2022 as per Schedule III of the
Companies Act, 2013. Ignore previous years' figures. (20 Marks)
Answer
Balance Sheet of Anmol Ltd. as at 31st March, 2022
Particulars Note `
No
Equity and Liabilities
1 Shareholders' funds
a Share capital 1 10,00,000
b Reserves and Surplus 2 24,76,462

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 16 INTERMEDIATE EXAMINATION: NOVEMBER 2022

2 Non-current liabilities
a Long-term borrowings 3 85,00,000
3 Current liabilities
a Short term borrowings (Installment of term loan falling 17,00,000
due in one year)
b Trade Payables 4 56,33,875
c Other current liabilities 5 1,76,500
d Short term provisions (provision for tax) 1,16,988
Total 1,96,03,825
ASSETS
1 Non-current assets
a PPE 6 1,11,70,700
2 Current assets
a Inventories 11,37,500
b Trade receivables 7 61,51,250
c Cash and bank balances 8 11,06,875
d Short term loans & advances (Advance tax paid) 37,500
1,96,03,825
Statement of Profit and Loss of Anmol Ltd.
for the year ended 31st March, 2022
Particulars Notes Amount
I. Revenue from operations 1,25,87,000
II. Other income (Commission income) 72,500
III. Total Income (I + II) 1,26,59,500
IV. Expenses:
Purchases of Inventory-in-Trade 82,95,000
Changes in inventories of finished goods work-in- 9 (2,12,500)
progress and Inventory-in-Trade
Employee benefits expense 10 14,28,500
Finance costs (interest on term loan) 8,05,000
Depreciation 7,80,300
Other operating expenses 11 10,95,250
Total expenses 1,21,91,550

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V. Profit (Loss) for the period (III - IV) 4,67,950

VI. (-) Tax (25%) (1,16,988)
VII. PAT 3,50,962

Notes to accounts
`
1 Share Capital
Equity share capital
Authorized
2,00,000 equity shares of ` 10 each 20,00,000
Issued & subscribed
1,00,000 equity shares of ` 10 each 10,00,000
2 Reserves and Surplus
General Reserve 10,00,000
Add: current year transfer 1,00,000 11,00,000
Profit & Loss balance
Opening balance: Surplus P & L A/c 8,75,500
Profit for the year 3,50,962
Less: Appropriations:
Transfer to General reserve (1,00,000) 11,26,462
Securities premium 2,50,000
24,76,462
3 Long-term borrowings
Term loan from public sector bank (Secured by 1,02,00,000
hypothecation)
Less: Installment of Term loan falling due within one (17,00,000)
year
Total 85,00,000
4 Trade payables
Trade payables 55,08,875
Bills payable 1,25,000 56,33,875
5 Other current liabilities
Rent outstanding 20,000
Wages and Salaries Outstanding 1,56,500 1,76,500

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 18 INTERMEDIATE EXAMINATION: NOVEMBER 2022

6 PPE (Note 2)
Land 24,00,000
Factory Buildings 33,21,200
Plant & Machinery 47,81,250
Furniture & Fittings 6,68,250
Total 1,11,70,700
7 Trade receivables
Debtors Outstanding for period exceeding 6 months 85,600
Other debts 63,89,400
Less: Provision for doubtful debt (3,23,750) 61,51,250
8 Cash and bank balances
Cash and cash equivalents
Bank balance 9,75,000
Cash on hand 1,31,875 11,06,875
9 Changes in Inventories
Opening Inventory 9,25,000
Less: Closing Inventory (11,37,500)
Change (2,12,500)
10 Employee benefit expense
Wages and Salaries 12,72,000
Add: Wages and Salaries Outstanding 1,56,500 14,28,500
11 Other operating expenses
Rent 2,20,000
Add: outstanding 20,000 2,40,000
Rates and Taxes 50,000
Selling & Distribution expenses 4,36,000
Bad debts 38,500
Provision for Doubtful Debts (3,23,750-25,000) 2,98,750
Director’s fee 32,000
Total 10,95,250
Note:
1. The final dividend will not be recognized as a liability at the balance sheet date (even if it
is declared after reporting date but before approval of the financial statements) as per
Accounting Standards. Hence, it has not been recognized in the financial statements for
the year ended 31 March, 2022. Such dividends will be disclosed in notes only.

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2. Calculation of depreciation:
Book Accumulated WDV Current year Current year
value depreciation Depreciation WDV
Land 24,00,000 - 24,00,000 - 24,00,000
Factory building 36,80,000 1,84,000 34,96,000 1,74,800 33,21,200
Plant & Machinery 62,50,000 9,37,500 53,12,500 5,31,250 47,81,250
Furniture & Fittings 8,25,000 82,500 7,42,500 74,250 6,68,250
Total 7,80,300 1,11,70,700
Question 5
(a) On 1st April, 2021, the following balances appeared in the books of Globe Limited (an
unlisted company other than AIFI, Banking Company, NBFC and HFC):
(i) 50,000 9% Debentures of ` 100 each issued at par
(ii) Balance of Debenture Redemption Reserve (DRR) ` 5,00,000.
(iii) Debenture Redemption Reserve (DRR) Investment ` 5,00,000 represented by 8.75%
Secured Bonds of the Government of India of ` 100 each.
Interest on Debentures was paid half- yearly on 30 th of September and 31 st March every
year. On 31st May, 2021, the company purchased 8,000 Debentures of its own @ 98
(ex-interest) per debenture and cancelled them on the same date.
On 1st January,2022, it further acquired another 10,000 own Debentures @ ` 101 (cum -
interest) per debenture and cancelled them on the same date.
The funds required for purchasing the aforesaid debentures were partly raised by selling
off the DRR Investment.
On 30th March, 2022, the remaining investments were realized at par and the Debentures
were redeemed on 31 st March, 2022.
You are required to prepare the following accounts for the year ended 31 st March, 2022:
(1) 9% Debentures Account.
(2) Debenture Redemption Reserve Account.
(3) Debenture Redemption Reserve Investment Account.
(4) Interest on Debentures Account. (12 Marks)
(b) Grooming Enterprises has 2 Departments, Department A and Department B. Department
A manufacture Dyed Thread which is used by Department B for its Clothes production.
Total production of Department A is sold to Department B at Cost plus profit.
The following information is provided for year ending 31 st March,2022:

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 20 INTERMEDIATE EXAMINATION: NOVEMBER 2022

Department A Department B
Amount in (`) Amount in (`)
Opening Stock 1,25,000 4,20,000
Purchases 12,60,000 22,90,000
(Includes purchases from department A)
Sales 15,50,000 30,40,000
Wages 1,25,000 5,60,000
Closing Stock 3,47,500 5,36,000
Both Opening & Closing Stocks of Department B consist 80% of Department A. Department
A earned a Gross Profit of 20% in previous year.
Other information:
(a) Rent paid ` 60,000
(b) Carriage outward ` 40,000
(c) Other administrative expenses ` 1,55,000
You are required to prepare Departmental Trading and Profit & Loss account for the year
ended 31st March, 2022. (8 Marks)
Answer
(a) In the book of Globe Ltd.
9% Debentures Account
Date Particulars ` Date Particulars `
31.5.21 To Bank A/c* (Own 1.4.21 By Bal b/d 50,00,000
Debentures Purchased) 784,000
To Profit on cancellation 16,000
of debentures
1.1.22 To Bank A/c* (Own
Debentures Purchased) 9,87,500
(10,000x101) - 22,500
To Profit on cancellation 12,500
of debentures
31.3.22 To Bank 32,00,000
50,00,000 50,00,000
Note - Alternatively, this entry can also be routed through Own Debentures Account.

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Debenture Redemption Reserve Account

Date Particulars ` Date Particulars `
31.5.21 To General reserve 80,000 1.4.21 By Bal b/d 5,00,000
1.1.22 To General reserve 1,00,000
31.3.22 To General reserve 3,20,000
5,00,000 5,00,000
Debenture Redemption Reserve Investment Account
Date Particulars ` Date Particulars `
1.4.21 To Bal b/d 5,00,000 31.5.21 By Bank A/c 1,20,000
(8,000x100x15%)
1.4.21 To Bank A/c 2,50,000 1.1.22 By Bank A/c 1,50,000
(10,000x100x15%)
31.3.22 By Bank A/c 4,80,000
(32,000x100x15%)
7,50,000 7,50,000
Interest on Debentures Account
Date Particulars ` Date Particulars `
31.5.21 To Bank A/c 31.3.22 By P&L A/c 3,67,500
(8,000x100x9%x2/12) 12,000
30.9.21 To Bank A/c
(42,000 x 100 x 9% x 6/12) 1,89,000
1.1.22 To Bank A/c
(10,000x100x9%x3/12) 22,500
31.3.22 To Bank A/c
(32,000x100x9%x 6/12) 1,44,000
3,67,500 3,67,500
Working Note:
Additional Investment in Debenture Redemption Reserve Investment
Debenture redemption Reserve Investment required = 15% of ` 50,00,000 = ` 7,50,000
Debenture redemption Reserve Investment existing on 1/04/21 = 5,00,000
Additional Debenture redemption Reserve Investment required =
` 7,50,000 - ` 5,00,000 = ` 2,50,000

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 22 INTERMEDIATE EXAMINATION: NOVEMBER 2022

(b) In the books of Grooming enterprise

Trading and P&L A/c for the year ended 31.3.22
Particulars A B Total Particulars A B Total
To Op. stock 1,25,000 4,20,000 5,45,000 By Sales 15,50,000 30,40,000 45,90,000
To Purchase 12,60,000 22,90,000 35,50,000
To Wages 1,25,000 5,60,000 6,85,000
To Gross Profit 3,87,500 3,06,000 6,93,500 By Closing 3,47,500 5,36,000 8,83,500
stock
18,97,500 35,76,000 54,73,500 18,97,500 35,76,000 54,73,500
To Rent 60,000 By Gross 3,87,500 3,06,000 6,93,500
Profit
To Carriage 40,000
To Other 1,55,000
administrative
expenses
To Net profit 4,38,500
6,93,500 6,93,500

General P& L Account

Particulars ` Particulars `
By Net profit 4,38,500
To Closing stock reserve (W.N.) 1,07,200 By Opening stock reserve 67,200
To Net profit 3,98,500 (4,20,000X80%X20%)
5,05,700 5,05,700
Working Note:
Sr. No. Particulars Dept. A
(i) Gross profit 3,87,500
(ii) Sales 15,50,000
(iii) GP ratio (i/ii) 25%
(iv) Closing stock Dept. B (5,36,000X80%) 4,28,800
(v) Stock reserve on closing stock (iii X iv) 1,07,200
Note:
The question is silent over distribution of indirect expenses into dept. A and dept B. In the
answer given above, indirect expenses have been shown directly in General profit and loss
A/c. Alternatively, Indirect expenses can be distributed equally or in the ratio of turnover
between Dept A and Dept B in Departmental Profit and loss account.

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Question 6
Answer any four of the following:
(a) Surabhi purchased a car on Hire Purchase from M/s Pawan Automobiles on 1 st April, 2019.
The Hire Purchase price was ` 3,00,000 and the same was payable in 5 half yearly
installments of ` 60,000 each, the first installment being due on 1 st October, 2019. Interest
is payable @ 10% per annum and the same is included in the half yearly installment of
` 60,000,
You are required to calculate the cash price of the car and the interest paid on each
installment.
(b) As on 1st April, 2021 opening Balance Sheet of Mr. Mohanty is showing the aggregate
value of Assets, Liabilities and Equity ` 12 Lakhs, 3 Lakhs and 9 lakhs respectively.
During the accounting period 01/04/2021 to 31/03/2022, Mr. Mohanty has the following
transactions:
(1) A liability of ` 50,000 was finally settled at a discount of 2%.
(2) Dividend earned @ 15% on 1,000 (F.V 100 each) Equity shares held @ ` 12,000.
(3) Rent of the premises paid ` 20,000.
(4) Mr. Mohanty withdrew ` 10,000 for personal purposes and also withdrew Goods worth
` 5,000 for personal purposes.
(5) ` 15,000 were received against Bill Receivables.
You are required to show the effect of the above transactions on Balance Sheet in the form
of Assets - Liabilities = Equity equation after each transaction.
(c) Given below are the extracts of Balance Sheet of Sea Chemicals Limited as on 31 st March,
2022:
Particulars Amount in `
9% Redeemable Preference Share Capital 10,00,000
Calls in arears (Redeemable Preference Shares) 20,000
General Reserve 7,00,000
Securities Premium 80,000
It is provided that:
− Preference Shares are of 100 each fully-called, due for immediate redemption at a
premium of 5%.
− Calls-in-arrears are on account of final call on 1000 shares held by four members
whose whereabouts are not known.

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 24 INTERMEDIATE EXAMINATION: NOVEMBER 2022

− Balance of General Reserve and Securities Premium to be fully utilised for the
purposes of redemption and the shortfall to be made good by issue of equity shares
of ` 10 each at par.
− The redemption of preference shares was duly carried out.
You are required to pass the necessary journal entries (narration not required) to give
effect to the above redemption.
(d) The following information is provided by Sarovar Limited, a Non-Investment company,
incurring losses from past 2 years:
Particulars Amount in (`)
Share Capital (Issued & Subscribed) 1,05,73,000
Capital Reserve 90,000
Securities Premium 67,000
Public Deposits 14,50,000
Trade Payables 1,98,000
Investment in other Co’s Shares 50,00,000
Profit & Loss (Dr.) 10,25,000
Sarovar Limited has a one Whole time Director, Mr. Shyam.
You are required to calculate the effective capital and the maximum remuneration that can
be paid to Mr. Shyam, if, no special resolution is passed at the General Meeting of the
company for the payment of remuneration for a period not exceeding three years.
(e) Explain the objective of 'Accounting Standards’ in brief. State the advantages of setting
Accounting Standards. (4 parts x 5 Marks= 20 Marks)
Answer
(a) Statement showing cash value of the machine acquired on hire-purchase basis
Instalment Interest @ 5% half Principal Amount
Amount yearly (10% p.a.) (in each
= 5/105 = 1/21 instalment)
(in each instalment)
` ` `
5thInstalment 60,000 2,857 57,143
Less: Interest 2,857
57,143
Add: 4th Instalment 60,000
1,17,143 5,578 54,422

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Less: Interest 5,578 (60,000-5578)

1,11,565
Add: 3rd instalment 60,000
1,71,565 8,170 51,830
Less: Interest 8,170 (60,000-8,170)
1,63,395
Add: 2nd instalment 60,000
2,23,395 10,638 49,362
Less: Interest 10,638 (60,000-10638)
2,12,757
Add: 1st instalment 60,000
2,72,757 12,988 47,012
Less: Interest 12,988 (60,000-12,988)
2,59,769 40,231 2,59,769
The cash purchase price of machinery is ` 2,59,769.
Note: Rounding off has been done for the computed interest amounts.
(b) Effects of each transaction on Balance sheet of the trader is shown below:
Assets Liabilities Equity
Transactions – =
` lakh ` lakh ` lakh
Opening 12 – 3 = 9
12 – 0.49 3 – 0.50 9.0 + 0.01
(1) Settlement of Creditors
11.51 – 2.5 = 9.01
11.51 + 0.15 9.01+ 0.15
(2) Dividend earned
11.66 – 2.5 = 9.16
11.66 -0.20 9.16 -0.20
(3) Rent paid
11.46 – 2.5 = 8.96
11.46 -0.15 8.96 -0.15
(4) Drawings
11.31 – 2.5 = 8.81

(5) *Money received against 11.31+0.15 -0.15

2.5
Bills receivables 11.31 8.81
– =
*No change as cash received from bills receivable will have impact on individual asset only
(will reduce bill receivables with corresponding increase in cash).

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 26 INTERMEDIATE EXAMINATION: NOVEMBER 2022

(c) Journal Entries

` `
9% Preference Share Capital A/c Dr. 1,00,000
To Calls in Arrears A/c 20,000
To Shares Forfeited A/c 80,000
(For Shares Forfeited because of non-payment of calls as
holders are unknown)
Bank A/c Dr. 2,00,000
To Equity Share Capital A/c 2,00,000
(Being the issue of 20,000 Equity Shares of ` 10 each at
par as per Board’s Resolution No…..dated….)
General Reserve A/c Dr. 7,00,000
To Capital Redemption Reserve A/c 7,00,000
(For transfer to CRR for the amount not covered by the
proceeds of fresh issue of equity shares)
9% Preference Share Capital A/c Dr. 9,00,000
Premium on Redemption of Preference shares A/c Dr. 45,000
To Preference Shareholders A/c 9,45,000
(For amount payable to preference shareholders on
redemption at 5% premium)
Preference Shareholders A/c Dr. 9,45,000
To Bank A/c 9,45,000
(For amount paid to preference shareholders)
Securities Premium A/c Dr. 45,000
To Premium on Redemption of Preference Shares A/c 45,000
(For writing off premium on redemption of preference
shares)
Working Note:
Number of Shares to be issued for redemption of Preference Shares:
Face value of shares redeemed 9,00,000
Less: Profit available for distribution as dividend:
General Reserve 7,00,000
2,00,000
Therefore, number of shares to be issued = ` 2,00,000/ ` 10= 20,000 shares.

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 PAPER – 1 : ACCOUNTING 27

Note: Securities premium has been utilized for the purpose of premium payable on
redemption of preference shares as per the information given in the question assuming
that the company referred in the question is not governed by Section 133 of the Companies
Act, 2013 and the company is not required to comply with the prescribed Accounting
Standards.
However, certain class of Companies whose financial statements comply with the
Accounting Standards as prescribed under Section 133 of the Companies Act, 2013, can’t
apply the securities premium account for the purpose of premium on redemption of
preference shares. Hence General Reserve is utilized instead of Securit ies premium for
premium payable on redemption of preference shares. In that case, the solution will be
given as follows:
Alternative answer

` `
9% Preference Share Capital A/c Dr. 1,00,000
To Calls in Arrears A/c 20,000
To Shares Forfeited A/c 80,000
(For Shares Forfeited because holders are unknown)
Bank A/c Dr. 2,45,000
To Equity Share Capital A/c 2,45,000
(Being the issue of 24,500 Equity Shares of ` 10 each
at par as per Board’s Resolution No…..dated…….)
General Reserve A/c Dr. 6,55,000
To Capital Redemption Reserve A/c 6,55,000
(For transfer to CRR for the amount not covered by the
proceeds of fresh issue of equity shares)
9% Preference Share Capital A/c Dr. 9,00,000
Premium on Redemption of Preference Shares A/c Dr. 45,000
To Preference Shareholders A/c 9,45,000
(For amount payable to preference shareholders on
redemption at 5% premium)
Preference Shareholders A/c Dr. 9,45,000
To Bank A/c 9,45,000
(For amount paid to preference shareholders)

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 28 INTERMEDIATE EXAMINATION: NOVEMBER 2022

General Reserve A/c Dr. 45,000

To Premium on Redemption A/c 45,000
(For writing off premium on redemption of preference
shares)

Working Note:
Number of Shares to be issued for redemption of Preference Shares:
Face value of shares redeemed 9,00,000
Less: Profit available for distribution as dividend:
General Reserve (7,00,000 – 45,000 set aside for adjusting premium
payable on redemption of preference shares) 6,55,000
2,45,000
Therefore, number of shares to be issued = ` 2,45,000/` 10 = 24,500
shares.
(d) Calculation of effective capital and maximum amount of monthly remuneration
(`)
Paid up share capital 1,05,73,000
Capital reserves 90,000
Securities premium 67,000
Public Deposits 14,50,000
(A) 1,21,80,000
Less: Investments 50,00,000
Accumulated losses not written off (P & L A/c Dr. balance) 10,25,000
(B) (60,25,000)
Effective capital for the purpose of managerial remuneration (A-B) 61,55,000

Since Sarovar Ltd. is incurring losses and no special resolution has been passed by the
company for payment of remuneration, managerial remuneration will be calculated on the
basis of effective capital of the company. The effective capital of the company is less than
5 crores, therefore maximum remuneration payable to the Managing Director should be
@ ` 60,00,000 per annum.

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(e) Accounting Standards are the written policy documents issued by Government relating to
various aspects of measurement, treatment, presentation and disclosure of accounting
transactions and events.
Following are the objectives of Accounting Standards:
a. Accounting Standards harmonize the diverse accounting policies and practices
followed by different companies in India.
b. Accounting Standards facilitate the preparation of financial statements and make
them comparable.
c. Accounting Standards give a sense of faith and reliability to the users.
The main advantages of setting accounting standards are as follows:
a. Accounting Standards make the financial statements of different companies
comparable which helps investors in decision making.
b. Accounting Standards prevent any misleading accounting treatment.
c. Accounting Standards prevent manipulation of data by the management.

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 PAPER – 1 : ACCOUNTING
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions may be made and indicated in answer by the
candidates.
Working Notes should form part of the answer.
Question 1
Answer the following questions:
(a) Suraj Limited provides you the following information:
(i) It received a Government Grant @40% towards the acquisition of Machinery worth
` 25 Crores.
(ii) It received a Capital Subsidy of ` 150 Lakhs from Government for setting up a Plant
costing ` 300 Lakhs in a notified backward region.
(iii) It received ` 50 Lakhs from Government for setting up a project for supply of arsenic
free water in a notified area.
(iv) It received ` 5 Lakhs from the Local Authority for providing Corona Vaccine free of
charge to its employees and their families.
(v) It also received a performance award of ` 500 Lakhs from Government with a
condition of major renovation in the Power Plant within 3 years. Suraj Limited incurred
90% of amount towards Capital expenditure and balance for Revenue Expenditure.
State, how you will treat the above in the books of Suraj Limited.
(b) SM Enterprises is a leading distributor of petrol. A detailed inventory of petrol in hand is
taken when the books are closed at the end of each month. For the month ending June
2021 following information is available:
(i) Sales for the month of June 2021 was `30,40,000.
(ii) General overheads cost `4,00,000.
(iii) Inventory at beginning 10,000 litres @ ` 92 per litre.
(iv) Purchases-June 1, 2021, 20,000 litres @ ` 90 per litre, June 30, 2021, 10,000 litres
@ ` 95 per litre.
(v) Closing inventory 13,000 litres.
You are required to compute the following by FIFO method as per AS 2:
(i) Value of Inventory on 30 th June, 2021.
(ii) Amount of cost of goods sold for June,2021.

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 2 INTERMEDIATE EXAMINATION: MAY 2022

(iii) Profit/Loss for the month of June,2021.

(c) XYZ Limited provided you the following information for the year ended 31 st March, 2022.
(i) The carrying amount of a property at the end of the year amounted to ` 2,16,000
(cost/value ` 2,50,000 and accumulated depreciation ` 34,000). On this date the
property was revalued and was deemed to have a fair value of ` 1,90,000. The
balance in the revaluation surplus relating to a previous revaluation gain for this
property was ` 20,000.
You are required to calculate the revaluation loss as per AS 10 (Revised) and give its
treatment in the books of accounts.
(ii) An asset that originally cost ` 76,000 and had accumulated depreciation of ` 62,000
was disposed of during the year for ` 4,000 cash.
You are required to explain how the disposal should be accounted for in the financial
statements as per AS 10 (Revised).
(d) Zebra Limited began construction of a new plant on 1 st April,2021 and obtained a special
loan of ` 20,00,000 to finance the construction of the plant. The rate of interest on loan
was 10%.
The expenditure that was incurred on the construction of plant was as follows:
`
1st April,2021 10,00,000
1st August,2021 24,00,000
1st January,2022 4,00,000
The company's other outstanding non-specific loan was ` 46,00,000 at an interest rate of
12%.
The construction of the plant completed on 31 st March,2022.
You are required to:
(a) Calculate the amount of interest to be capitalized as per the provisions of AS 16
"Borrowing Cost".
(b) Pass a journal entry for capitalizing the cost and the borrowing cost in respect of the
plant. (4 Parts X 5 Marks = 20 Marks)
Answer
(a) (i) As per AS 12 “Accounting for Govt. Grants”, two methods of presentation in financial
statements of grants related to specific fixed assets are regarded as acceptable
alternatives. Under the first alternative, the grant of ` 10 crores (40% of 25 crores) is
shown as a deduction from the gross value of the asset concerned in arriving at its
book value. The grant is thus recognized the profit and loss statement over the useful

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 PAPER – 1 : ACCOUNTING 3

life of a depreciable asset by way of a reduced depreciation charge. Under second

alternative method, grant amounting ` 10 crores is treated as deferred income which
is recognized in the profit and loss statement on a systematic and rational basis over
the useful life of the asset.
(ii) In the given case, the grant amounting ` 150 lakhs received from the Central
Government for setting up a plant in notified backward area may be considered as in
the nature of promoters’ contribution. Thus, amount of ` 150 lakhs should be credited
to capital reserve and the plant will be shown at ` 300 lakhs.
(iii) ` 50 lakhs received from Govt. for setting up a project for supply of arsenic free water
in notified area should be credited to capital reserve.
Alternatively, if it is assumed that the project consists of capital asset only, then the
amount of ` 50 lakhs received from Govt. for setting up a project for supply of arsenic
free water should either be deducted from cost of asset of the project concerned in
the balance sheet or treated as deferred income which is recognized in the profit and
loss statement on a systematic and rational basis over the useful life of the asset.
(iv) ` 5 lakhs received from the local authority for providing corona vaccine to the
employees is a grant received in nature of revenue grant. Such grants are generally
presented as a credit in the profit and loss account, either separately or under a
general heading ‘Other Income’. Alternatively, ` 5 lakhs may be deducted in reporting
the related expense i.e. employee benefit expenses.
(v) ` 500 Lakhs will be reduced from the renovation cost of power plant or will be treated
as deferred income irrespective of the expenditure done by the entity out of it as it
was specifically received for the purpose major renovation of power plant. However,
it may be, later on, decided by the Govt. whether the grant will have to be refunded
or not due to non-compliance of conditions attached to the grant.
(b)
`
Cost of closing inventory for 13,000 litres as on 30 th June 2021
10,000 litres @ ` 95 9,50,000
3,000 litres @ ` 90 2,70,000
Value of inventory (determined at cost in absence of NRV)
12,20,000
Calculation of cost of goods sold
Opening inventories (10,000 litres @ ` 92) 9,20,000
Purchases June – 1 (20,000 litres @ ` 90) 18,00,000
June – 30 (10,000 litres @ 95) 9,50,000
36,70,000

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 4 INTERMEDIATE EXAMINATION: MAY 2022

Less: Closing inventories (12,20,000)

Cost of Goods Sold 24,50,000
Calculation of Profit
Sales (Given) (A) 30,40,000
Cost of Goods Sold 24,50,000
Add: General Overheads 4,00,000
Total Cost (B) 28,50,000
Profit (A-B) 1,90,000
(c) (i) As per AS 10, a decrease in the carrying amount of an asset arising on revaluation
should be charged to the statement of profit and loss. However, the decrease should
be debited directly to owners’ interests under the heading of revaluation surplus to
the extent of any credit balance existing in the revaluation surplus in respect of that
asset.
Calculation of revaluation loss and its accounting treatment
`
Carrying value of the asset as on 31 st March, 2022 a 2,16,000
Revalued amount of the asset b (1,90,000)
Total revaluation loss on asset c=a-b 26,000
Adjustment of previous revaluation reserve d (20,000)
Net revaluation loss to be charged to the Profit and loss e=c-d 6,000
account
(ii) AS 10 states that the carrying amount of an item of property, plant and equipment is
derecognized on disposal of the asset. It further states that the gain or loss arising
from the derecognition of an item of property, plant and equipment should be included
in the statement of profit and loss when the item is derecognized. Gains should also
not be classified as revenue.
Calculation of loss on disposal of the asset and its accounting treatment
`
Original cost of the asset a 76,000
Accumulated depreciation till date b 62,000
Carrying value of the asset as on 31 st
March, 2022 c=a-b 14,000
Cash received on disposal of the asset d 4,000
Loss on disposal of asset charged to the Profit and loss e=c-d 10,000
account

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 PAPER – 1 : ACCOUNTING 5

(d) Total expenses to be capitalized for borrowings as per AS 16 “Borrowing Costs”:

`
Cost of Plant (10,00,000 + 24,00,000 + 4,00,000) 38,00,000
Add: Amount of interest to be capitalized (W.N.) 3,24,000
41,24,000
Journal Entry
` `
31st March, 2022 Plant A/c Dr. 41,24,000
To Bank A/c 41,24,000
[Being amount of cost of plant
and borrowing cost thereon
capitalized]
Working Note:
Computation of interest to be capitalized:
Expenditure `
1st April, 2021 10,00,000 On specific ` 10,00,000 x 10% 1,00,000
borrowing
1st August, 2021 On specific ` 10,00,000 x 10% 1,00,000
24,00,000 borrowing
1st August, 2021 On non-specific 8 1,12,000
borrowings ` 14,00,000  x 12%
12
1st January, 4,00,000 On non-specific 3
2022 borrowings ` 4,00,000  x 12% 12,000
12
3,24,000
Alternatively, interest cost to be capitalized can be derived by computing average
accumulated expenses in the following manner.
Computation of Average Accumulated Expenses:
1st April, 2021 10,00,000 x 12/12 10,00,000
1st August, 2021 10,00,000 x 12/12 10,00,000
14,00,000 x 8/12 9,33,333
1st January, 2022 4,00,000 x 3/12 1,00,000
30,33,333

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 6 INTERMEDIATE EXAMINATION: MAY 2022

Computation of interest to be capitalized:

`
On specific borrowing ` 20,00,000 x 10% 2,00,000

On non-specific borrowing ` (30,33,333- 20,00,000) x 12% 1,24,000

3,24,000
NOTE: Since specific borrowings are earmarked for construction of a particular qualifying
asset, it cannot be used for construction of any other qualifying asset except for temporary
investment. Therefore, once the commencement of capitalization of borrowing cost criteria
are met, actual borrowing cost incurred on specific borrowing shall be capitalized
irrespective of the fact that amount had been utilized in parts.
Question 2
(a) The following particulars relate to hire purchase transactions:
(i) Mita purchased three bikes from Nita on hire purchase basis, the cash price of each
bike being ` 1,00,000
(ii) Mita charged depreciation @ 20% on written down value method.
(iii) Two bikes were seized by the Nita when second instalment was not paid at the end
of the second year. Nita valued the two bikes at cash price less 30% depreciation
charged under written down valued method.
(iv) Nita spent ` 5,000 on repairs of the bikes and then sold them for a total amount of
` 85,000.
You are required to compute:
(i) Agreed value of two bikes taken back by Nita.
(ii) Book value of the bike left with Mita.
(iii) Profit or loss to Mita on two bikes taken back by Nita.
(iv) Profit or loss of bikes repossessed, when sold by Nita. (10 Marks)
(b) Surya Limited, which operates a wholesale warehouse, had a fire in the premises on
31st January 2022 which destroyed most of the building, although stock of the value of
` 3.96 lakhs was salvaged.
The company has an insurance policy covering the stock for ` 600 Lakhs, and loss of
profits including standing charges for ` 250 Lakhs with a six-month period of indemnity.
The company's last annual accounts for the year ended December 31 st ,2021 showed the
following position:

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 PAPER – 1 : ACCOUNTING 7

Particulars (` in Lakhs) Particulars (` in Lakhs)

To Opening Stock 412.50 By Sales 2000.00
To Purchases 1812.50 By Closing Stock 525.00
To Gross Profit c/d 300.00
2525.00 2525.00
To Variable Expenses 80.00 By Gross Profit b/d 300.00
To Standing Charges 167.50
To Net Profit 52.50
300.00 300.00
The company's record show that the turnover for January 2022 of ` 100 Lakhs had been
the same as for the corresponding month in the previous year, payments made in January
2022 to trade creditors were ` 106.68 Lakhs and at the end of that month the balance
owing to trade creditors had increased by ` 3.32 Lakhs.·
The company's business was disrupted until the end of April 2022, during which period the
turnover fell by ` 180.00 Lakhs compared with the same period in the previous year.
You are required to compute the claim. to be lodged with the Insurance Company for Loss
of Stock and Loss of Profit. (10 Marks)
Answer
(a)
`
(i) Price of two Bikes = ` 1,00,000 x 2 2,00,000
Less: Depreciation for the first year @ 30% 60,000
1,40,000
30
Less: Depreciation for the second year = ` 1,40,000 x
100 42,000
Agreed value of two Bikes taken back by the hire vendor 98,000
(ii) Cash purchase price of one Bike 1,00,000
Less: Depreciation on ` 1,00,000 @20% for the first year 20,000
Written drown value at the end of first year 80,000
Less: Depreciation on ` 80,000 @ 20% for the second year 16,000
Book value of Bike left with the hire purchaser 64,000
(iii) Book value of one Bike as calculated above 64,000
Book value of Two Bikes = ` 64,000 x 2 1,28,000

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 8 INTERMEDIATE EXAMINATION: MAY 2022

Value at which the two Bikes were taken back, calculated in (i) 98,000
above
Hence, loss to hire purchaser on machine taken back by hire
vendor (` 1,28,000 – ` 98,000) ` 30,000
(iv) Profit or loss on Bikes repossessed when sold by hire vendor
Sale proceeds 85,000
Less: Value at which Bikes were taken back 98,000
Repairs 5,000 (1,03,000)
Loss on resale 18,000
(b) Computation of claim for Loss of Stock
Calculation of the value of stock destroyed by fire: ` (in lakhs)
Value of stock as per Memorandum Trading A/c (W.N. 1) 550.00
Less: Salvaged value of stock 3.96
Value of claim to be lodged for loss of stock 546.04
As Policy amount is ` 600 lakhs and the insurable amount is 550 lakhs so average clause
will not be applicable. The value of claim is equal to value of loss i.e. ` 546.04 lakhs.
Computation of claim for loss of profit
` (in lakhs)
Short sales (given in the question) 180
Gross Profit:
Net Profit for the last financial year 52.50
Add: Insured Standing Charges 167.50
220.00
Turnover for the last financial year
Rate of Gross Profit = 220/2,000 X 100 = 11%
Sales for 12 months up to date of loss is ` 2,000 lakhs
Claim: Loss of profit for short sales (11% of `180 lakhs) 19.80
G.P. on sales up to the date of loss of fire is ` 220 lakhs
Insurable amount = ` 220 lakhs
Loss of profit policy taken = ` 250 lakhs
As policy amount is more than insurable amount average clause will not
be applicable.
Value of claim to be lodged for loss of profit = ` 19.80 lakhs

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 PAPER – 1 : ACCOUNTING 9

Working Notes:
1. Memorandum Trading Account
` (in lakhs) ` (in lakhs)
To Opening Stock 525 By Sales 100
To Purchases 110 By closing stock (bal. fig.) 550
To Gross profit*
(15% of 100 Lakhs) 15
650 650
* Gross profit ratio = 300/2000 = 15%
2. Trade Creditors A/c
` (in lakhs) ` (in lakhs)
To Bank A/c 106.68 By Balance b/d 106.68
To Balance c/d 110.00 By Purchases 110.00
(106.68 + 3.32)
216.68 216.68
Note: It is assumed that all standing charges are insured for the purpose of computation
of gross profit.
Question 3
(a) Stevie and Alicia are in partnership sharing profits and losses equally.
They maintain their books on Single Entry System.
The following balances are available from their books as on 31.3 .2021 and 31.3 .2022:
Particulars 31.3.2021 31.3.2022
` `
Building 3,00,000 3,00,000
Equipment 4,80,000 5,44,000
Furniture 50,000 50,000
Debtors ? 2,00,000
Creditors 1,30,000 ?
Stock ? 1,40,000
Bank loan 90,000 70,000
Cash 1,20,000 ?

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 10 INTERMEDIATE EXAMINATION: MAY 2022

The transactions during the year ended 31.3.2022 were the following:
Collection from Debtors 7,60,000
Payment to Creditors 5,00,000
Expenses Paid 80,000
Drawings by Stevie 60,000
Discount allowed 11,000
Discount received 9,600
Other information:
(i) On 1.4.2021, an equipment of book value ` 40,000 was sold for ` 30,000. On
1.10.2021, some more equipment were purchased.
(ii) Cash sales amounted to 10% of total sales.
(iii) Credit sales amounted to ` 9,00,000.
(iv) Credit purchases were 80% of total purchases.
(v) Cash Purchases amounted to ` 1,30,000.
(vi) The firm sells goods at cost plus 25%.
(vii) Outstanding expenses were ` 6,000 as on 31.3.2022.
(viii) Capital of Stevie as on 31.3.2021 was ` 30,000 more than the capital of Alicia,
equipment and furniture to be depreciated at 10% p.a. and building @ 2% p.a. (apply
depreciation of new equipment for 1/2 year)
You are required to prepare:
(i) Trading and Profit and Loss Account for the year ended31.3 .2022 and;
(ii) Balance Sheet as on that date. (12 Marks)
(b) PQR Limited has three departments L, M and N. The following information is provided for
the year ended 31.3 .2022:
L` M` N`
Opening stock 10,000 16,000 38,000
Opening reserve for unrealized Profit - 4,000 6,000
Materials Consumed 32,000 40,000 -
Direct labour 18,000 20,000 -
Closing stock 10,000 40,000 10,000
Sales - - 1,60,000
Area occupied (sq. mtr.) 5,000 3,000 2,000
No. of employees 60 40 20

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The following information is provided:

Stocks of each department are valued at cost to the department concerned.
Stocks of L are transferred to M at cost plus 20% and stocks of M are transferred to N at
a gross profit of 20% on sales.
Other common expenses are salaries and staff welfare, ` 36,000 and Rent, ` 12,000.
You are required to prepare Departmental Trading, Profit and Loss Account for the year
ending 31.3 .2022. (8 Marks)
Answer
(a) Trading and Profit and Loss A/c for the year ended 31.3.2022
` `
To Opening stock 2,90,000 By Sales - Cash 1,00,000
(W.N.3) (W.N.1)
To Purchases-Cash 1,30,000 Credit 9,00,000 10,00,000
Credit (W.N.2) 5,20,000 6,50,000 By Closing stock 1,40,000
To Gross profit c/d 2,00,000
11,40,000 11,40,000
To Loss on sale of By Gross profit b/d 2,00,000
equipment 10,000
(40,000-30,000)
To Depreciation By Discount received 9,600
Building 6,000
Furniture 5,000
Equipment 60,200
(W.N.4) 49,200

To Expenses paid 80,000

Add: Outstanding
86,000
expenses 6,000
To Discount allowed 11,000
To Net profit
transferred to:
Stevie’s capital 21,200
A/c
Alicia’s capital
A/c 21,200 42,400
2,09,600 2,09,600

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 12 INTERMEDIATE EXAMINATION: MAY 2022

Balance Sheet as on 31st March, 2022

Equity and Liabilities ` Assets `
Stevie’s capital (W.N.7) 5,60,500 Building 3,00,000
Less: Drawings (60,000) Less: Depreciation (6,000) 2,94,000
5,00,500 Equipment 5,44,000
Add: Net profit 21,200 5,21,700 Less: Depreciation (49,200) 4,94,800
Alicia’s capital (W.N.7) 5,30,500 Furniture 50,000
Add: Net profit 21,200 5,51,700 Less: Depreciation (5,000) 45,000
Sundry creditors Debtors 2,00,000
1,40,400
(W.N.5)
Bank loan 70,000 Stock 1,40,000
Outstanding expenses 6,000 Cash balance (W.N.8) 1,16,000
12,89,800 12,89,800

Working Notes:
1. Calculation of total sales
Cash sales = 10% of total sales
Credit sales = 90% of total sales = ` 9,00,000
9,00,000
Total sales = ×100 = 10,00,000
90
Cash sales = 10% of 10,00,000 = ` 1,00,000
2. Calculation of total purchases
Cash purchases = ` 1,30,000
Credit purchases = 80% of total purchases
Cash purchases = 20% of total purchases
1,30,000
Total purchases = ×100 = ` 6,50,000
20
Credit purchases = 6,50,000 – 1,30,000 = ` 5,20,000
3. Calculation of opening stock
Stock Account
` `
To Balance b/d (Bal. Fig.) 2,90,000 By Cost of goods sold 8,00,000
10,00,000
× 100
125

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 PAPER – 1 : ACCOUNTING 13

To Total purchases (W.N.2) 6,50,000 By Balance c/d 1,40,000

9,40,000 9,40,000
4. Purchase of equipment & depreciation on equipment
Equipment Account
` `
To Balance b/d 4,80,000 By Cash -equipment sold 30,000
To Cash-purchase By Profit and Loss Account
(Bal. Fig.) 1,04,000 (Loss on sale) 10,000
By Balance c/d 5,44,000
5,84,000 5,84,000

Depreciation on equipment:
@ 10% p.a. on ` 4,40,000 (i.e. ` 4,80,000 – ` 40,000) = 44,000
@ 10% p.a. on ` 1,04,000 for 6 months (i.e. during the year) = 5,200
49,200
5. Calculation of closing balance of creditors
Creditors Account
` `
To Cash 5,00,000 By Balance b/d 1,30,000
To Discount received 9,600 By Credit purchases (W.N.2)
5,20,000
To Balance c/d (Bal. Fig.) 1,40,400
6,50,000 6,50,000

6. Calculation of opening balance of debtors

Debtors Account
` `
To Balance b/d (Bal. Fig.) 71,000 By Cash 7,60,000
To Sales (Credit) 9,00,000 By Discount allowed 11,000
By Balance c/d 2,00,000
9,71,000 9,71,000

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 14 INTERMEDIATE EXAMINATION: MAY 2022

7. Calculation of capital accounts of Stevie & Alicia as on 31.3.2021

Balance Sheet as on 31.3.2021
Liabilities ` Assets `
Combined Capital Accounts of 10,91,000 Building 3,00,000
Stevie & Alicia (Bal. Fig.) Equipment 4,80,000
Creditors 1,30,000 Furniture 50,000
Bank Loan 90,000 Debtors (W.N.6) 71,000
Stock (W.N.3) 2,90,000
Cash balance 1,20,000
13,11,000 13,11,000

`
Combined Capitals of Stevie & Alicia 10,91,000
Less: Difference in capitals of Stevie & Alicia (30,000)
10,61,000
10,61,000
Stevie’s capital as on 31.3.2021= = 5,30,500 + 30,000 = ` 5,60,500
2
10,61,000
Alicia’s capital as on 31.3.2021 = = ` 5,30,500
2
8. Cash Account
` `
To Balance b/d 1,20,000 By Creditors 5,00,000
To Debtors 7,60,000 By Purchases 1,30,000
To Equipment (sales) 30,000 By Expenses 80,000
To Cash sales (W.N.1) 1,00,000 By Stevie’s drawings 60,000
By Bank loan paid
(90,000-70,000) 20,000
By Equipment purchased
(W.N.4) 1,04,000
By Balance c/d (Bal. Fig.) 1,16,000
10,10,000 10,10,000

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(b) PQR Ltd.

Departmental Trading and Profit and Loss Account
for the year ended 31 st March, 2022
L M N Total L M N Total
` ` ` ` ` ` ` `
To Opening 10,000 16,000 38,000 64,000 By Sales 1,60,000 1,60,000
stock
To Material 32,000 40,000 72,000 By Inter-
consumed depart-
mental
To Direct labour 18,000 20,000 38,000 transfer 60,000 1,20,000 1,80,000
To Inter-depart- 60,000 1,20,000 1,80,000 By Closing 10,000 40,000 10,000 60,000
mental stock
transfer
To Gross profit 10,000 24,000 12,000 46,000
70,000 1,60,000 1,70,000 4,00,000 70,000 1,60,000 1,70,000 4,00,000
To Salaries and 18,000 12,000 6,000 36,000 By Gross 10,000 24,000 12,000 46,000
staff welfare profit
b/d
To Rent 6,000 3,600 2,400 12,000 By Net 14,000 14,000
loss
To Net profit 8,400 3,600 12,000
24,000 24,000 12,000 60,000 24,000 24,000 12,000 60,000

Combined Profit and loss account for the

year ended 31 st March, 2022
` `
To Net loss (L) 14,000 By Stock reserve b/d
To Stock reserve 6,000 (M 4,000 + N 6,000) 10,000
(M 3,333 + N 2,667)
(Refer W.N.) By Net profit 12,000
(M 8,400 + N 3,600)
To Balance transferred to
profit and loss account 2,000
22,000 22,000

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 16 INTERMEDIATE EXAMINATION: MAY 2022

Working Notes:
1. Calculation of Inter Department Transfer
(i) From Dept L to Dept M
Opening Stock + Material Consumed + Direct Labour Cost – Closing Stock
10,000 + 32,000 + 18,000 -10,000 = 50,000/-
Profit on transfer is 20% of Cost = ` 10,000/-. Hence transfer = ` 60,000
(ii) From Dept M to Dept N
Opening Stock + Material Consumed + Direct Labour + Inward Transfer –
Closing Stock
16,000 + 40,000 + 20,000 + 60,000 – 40,000 = ` 96,000/-
Profit on transfer = 20% of sale value i.e. 25% of cost price = ` 24,000
Hence, stock transferred to N at a value of ` 1,20,000
2. Calculation of unrealized profit on closing stock
(i) Stock reserve of M department
`
Cost - Material consumed + Direct labour cost 60,000
Transfer from L department 60,000
1,20,000
Closing Stock of M department 40,000
` 60,000
Proportion of stock of L department = ` 40,000 × ` 1,20,000 = ` 20,000

20
Stock reserve =` 20,000  = ` 3,333 (approx.)
120
(ii) Stock reserve of N department
`
Closing Stock (being stock transferred from M department) 10,000
Less: Profit (stock reserve) 10,000  20% (2,000)
Cost to M department 8,000
` 60,000
Proportion of stock of L department = ` 8,000 × = ` 4,000
` 1,20,000
20
Stock reserve = 4,000 × 120
= ` 667 (approx.)
Total stock reserve = ` 2,000 + ` 667 = ` 2,667

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Question 4
Cool Limited was formed to take over a running business of Fire Enterprises with effect from
1st April,2021. The company was incorporated on 1st August,2021 and the certificate of
commencement of business was received on 1 st October 2021. No entries relating to the transfer
of the business were entered in the books which were continued until 31 st March,2022. The
following Trial Balance was extracted from the books as on 31 st March,2022.
Particulars Dr. (` ) Cr. (` )
Sales 19,20,000
Cost of Goods sold 15,54,000
Rent 80,000
Salaries 42,000
Travelling Expenses 16,800
Depreciation 9,600
Carriage outward 800
Printing & Stationary 4,800
Advertisement 16,000
Miscellaneous Expenses 25,200
Directors' fees 1,200
Managing Director's Remuneration 8,200
Bad debts 3,200
Commission & Brokerage to selling Agents 16,000
Audit fees 6,000
Interest on Debentures 3,000
Interest to Vendors 4,200
Selling & Distribution Expenses 24,000
Preliminary Expenses 3,000
Underwriting Commission 1,800
Fixed Assets 7,30,000
Current Assets 87,600
Cool Limited’s Capital as on 1 st April, 2021 5,56,000
Current Liabilities 61,400
Debentures 1,00,000
Total 26,37,400 26,37,400

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 18 INTERMEDIATE EXAMINATION: MAY 2022

Additional Information:
(a) Total Sales for the year arose evenly up to the date of the certificate of commencement
where-after they spurted to record an increase of two third during the rest of the year.
(b) The Company deals in one type of product. The unit cost of goods sold was reduced by
10% since 1st August, 2021 as compared to the pre incorporation period.
(c) Rent of old office building was increased by 20% since 1 st November,2021. It had to also
occupy additional space from 1 stJuly, 2021 for which rent was ` 6,000 p.m.
(d) The Salaries were tripled from 1 st July,2021.
(e) Travelling Expenses include ` 4,800 towards sales promotion.
(f) Depreciation includes, ` 600 for new assets acquired in August 2021.
(g) Purchase consideration was discharged by the company on 30 th September, 2021 by
issuing ` 60,000 Equity shares of ` 10 each.
You are required to prepare the Profit & Loss Statement in a columnar form for the year ended
31st March,2022 showing the allocation of profits between pre-incorporation and post-
incorporation periods indicating the basis of apportionment. (20 Marks)
Answer
Statement of Profit & Loss of Cool Limited for the year ended 31 st March,2022
showing the allocation of profits between pre and post incorporation periods
Particulars Note Pre- Post-
incorporation incorporation
` `
Revenue from Operations (W.N 2) 4,80,000 14,40,000
Other Income - -
I. Total Income 4,80,000 14,40,000
II Expenses:
Costs of Goods sold (W.N. 3) 4,20,000 11,34,000
Employee Benefits Expense 1 8,400 41,800
Finance Costs 2 2,800 4,400
Depreciation and Amortization Expense 3 3,000 6,600
Other Expenses 4 44,200 1,54,600
Total Expenses 4,78,400 13,41,400
III Profit for the Period (I-II) 1,600 98,600

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Notes relating to apportionment of expenses

for pre and post incorporation periods for the year ended 31.3.2022
Particulars Ratio Total Pre Post
Incorporation Incorporation
` `
1 Employee benefit expenses:
Salaries (W.N.5) 1:4 42,000 8,400 33,600
Managing director’s post 8,200 - 8,200
remuneration
8,400 41,800
2 Finance cost:
Debenture interest (post- post 3,000 - 3,000
incorporation)
Interest paid to vendor (2:1) 4,200 2,800 1,400
(W.N.7)
2,800 4,400
3 Other expenses:
Rent (office building) (W.N.4) 80,000 14,000 66,000
Travelling expenses (W.N.6) 1:2 12,000 4,000 8,000
Carriage outward 1:3 800 200 600
Printing & Stationery 1:2 4,800 1,600 3,200
Advertisement 1:3 16,000 4,000 12,000
Misc. expenses 1:2 25,200 8,400 16,800
Sales promotion expenses 4,800 1,200 3,600
(W.N.6)
Commission & brokerage 1:3 16,000 4,000 12,000
Selling & distribution expenses 1:3 24,000 6,000 18,000
Audit fee* post 6,000 6,000
Director’s fee (post- post 1,200 - 1,200
incorporation)
Bad debts 1:3 3,200 800 2,400
Preliminary expenses post 3,000 3,000
Underwriting commission post 1,800 1,800
44,200 1,54,600
4 Depreciation on fixed assets 9,600 3,000 6,600
(W.N.8)
*Audit fee considered to be relating with company audit. If considered as related with tax audit,
it will be divided in pre and post incorporation periods on the basis of turnover.

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 20 INTERMEDIATE EXAMINATION: MAY 2022

Working Notes:
1. Time Ratio
Pre incorporation period = 1 st April, 2021 to 31 st July, 2021
i.e. 4 months
Post incorporation period is 8 months
Time ratio is 1: 2.
2. Sales ratio
Let the monthly sales for first 6 months (i.e. from 1.4.2021 to 30.09. 2021) be x
Then, sales for 6 months = 6x
2 5
Monthly sales for next 6 months (i.e. from 1.10.21 to 31.3.2022) = x + x= x
3 3
5
Then, sales for next 6 months = x X 6 = 10x
3
Total sales for the year = 6x + 10x = 16x
Monthly sales in the pre incorporation period = ` 19,20,000/16 = ` 1,20,000
Total sales for pre-incorporation period = ` 1,20,000 x 4 = ` 4,80,000
Total sales for post incorporation period = ` 19,20,000 – ` 4,80,000 = ` 14,40,000
Sales Ratio = 4,80,000 : 14,40,000
Sales Ratio = 1 : 3
3. Cost of goods sold
Cost of goods ratio between pre and post incorporation periods can be calculated as
follows:
Let cost of goods sold in the pre-incorporation period be `100
Then cost of goods sold in the post-incorporation period is `90
Sales Ratio (as calculated above) = 1:3
Then, cost of goods sold ratio = (100 x 1): (90 x 3) = 100: 270= 10:27
4. Apportionment of Rent `
Total Rent 80,000
Less: additional rent from 1.7.2021 to 31.3.2022 54,000
Rent of old premises for 12 months 26,000

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Let monthly rent for old building is x pm.

Rent for April to July will be 4x and rent from Aug to March will be :
9x i.e. (x + x + x + 1.2x + 1.2x + 1.2x + 1.2x + 1.2x)
Pre Post
Apportionment of rent for old space 8,000 18,000
(` 26,000 in 4:9 ratio)
Add: Rent for new space 6,000 48,000
Total 14,000 66,000
5. Apportionment of Salary
Let the salary per month from 01.04.2021 to 30.06.2021 is x
Salary per month from 01.7.2021 to 31.03.2022 will be 3x
Hence, pre incorporation salary (01.04.2021 to 31.07.2021) = 6x
Post incorporation salary from 01.08.2021 to 31.03.2022 = (3x X 8) i.e.24x
Ratio for division 6x: 24x or 1: 4
i.e. pre = ` 8,400 and
for post = ` 33,600
6. Travelling expenses and sales promotion expenses
Pre Post
` `
Traveling expenses ` 12,000 (i.e. ` 16,800- ` 4,800) distributed
in Time ratio (1:2) 4,000 8,000
Sales promotion expenses ` 4,800 distributed in Sales ratio (1:3) 1,200 3,600
7. Interest paid to vendor till 30 th September, 2021
Pre Post
` `
 ` 4,200  2,800
Interest for pre-incorporation period  4
 6 
Interest for post incorporation period i.e. for
 ` 4,200  1,400
August, 2021 & September, 2021 =  2
 6 

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 22 INTERMEDIATE EXAMINATION: MAY 2022

8. Depreciation
Pre Post
` `
Total depreciation 9,600
Less: Depreciation exclusively for post incorporation period 600 600
Remaining (for pre and post incorporation period) 9,000
 4
Depreciation for pre-incorporation period 9,000   3,000
 12 
 8
Depreciation for post incorporation period 9,000   6,000
 12 
3,000 6,600
Question 5
(a) Given below is the extract of Balance Sheet of Daisy Limited as at 31st March,2021.
Particulars `
15% 650 Redeemable Preference Shares of ` 100 each, ` 80 per 52,000
share paid up
22,500 Equity Shares off ` 10 each, ` 9.50 per share paid up 2,13,750
Revaluation Reserve 45,000
Capital Reserve (realized in cash) 500
General Reserve 40,000
Securities Premium 500
Profit & Loss Account 40,500
Current Liabilities 1,07,750
Fixed Assets 3,71,500
Non-Current Investments [Face value ` 50,000] 1,00,000
Bank Balance 28,500
The following information are provided:
On 1st April,2021, the Board of Directors decided to make a final call of ` 20 on
Redeemable Preference Shares and to redeem the same at a premium of 10% on 1 st June,
2021.
The investments of the face value of ` 20,000 are sold at the market price which was 150%
of the face value.

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It is decided to issue sufficient number of Equity Shares of ` 10 each at a premium of 25%

after leaving a balance of ` 50,000 in bank account.
It was also decided to convert the partly paid-up Equity shares into fully paid up without
requiring the shareholders to pay for the same.
On 1st July,2021 the Board decided to issue fully paid bonus shares to the equity
shareholders in the ratio of one for five. (10 Marks)
You are required to pass the necessary journal entries for the above.
(b) Walkaway Footwears has its head office at Nagpur and Branch at Patna. It invoiced goods
to its branch at 20% less than the list price which is cost plus 100%, with instruction that cash
sales were to be made at invoice price and credit sales at catalogue price (i.e. list price).
The following information was available at the branch for the year ended 31 st March,2022.
(Figures in `)
Stock on 1st April,2021 (invoice price) 12,000
Debtors on 1st April, 2021 10,000
Goods received from head office (invoice price) 1,32,000
Sales:
Cash 46,000
Credit 1,00,000 1,46,000
Cash received. from debtors 85,000
Expenses at branch 17,500
Debtors on 31 st March, 2022 25,000
Stock on 31 st March,2022 (invoice price) 17,600
Remittances to head office 1,20,000
You are required to prepare Branch Stock Account, Branch Adjustment Account, Branch
Profit & Loss Account and Branch Debtors Account for the year ended 31 st March,2022.
(10 Marks)
Answer
(a) Journal Entries
2021 Dr. (`) Cr. (`)
April 1 15% Redeemable Preference Share Final Call A/c Dr. 13,000
To 15% Preference Share Capital A/c 13,000
(For final call made on 650 preference shares
@ ` 20 each to make them fully paid up)

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 24 INTERMEDIATE EXAMINATION: MAY 2022

Bank A/c Dr. 13,000

To 15% Preference Share Final Call A/c 13,000
(For receipt of final call money on preference shares)
1st June 15% Redeemable preference share capital A/c Dr. 65,000
Premium on redemption of pref. share A/c Dr. 6,500
To Redeemable Preference Shareholders A/c 71,500
(Being amount payable to preference shareholders
on redemption)
Cash & Bank balance A/c Dr. 30,000
Profit & Loss A/c Dr. 10,000
To Investment A/c 40,000
(Being investment sold out and loss on sale debited
to Profit & Loss A/c) [Book value =
` 1,00,000 x ` 20,000/ ` 50,000 = ` 40,000. Sale
proceeds = ` 20,000 x 150/100 = ` 30,000]
Bank A/c Dr. 50,000
To Equity share capital A/c 40,000
To securities premium A/c 10,000
(Being 4,000 equity shares of ` 10 issued at premium
of ` 2.50 per share)
Preference shareholders A/c Dr. 71,500
To Cash & bank A/c 71,500
(Being amount paid to preference shareholders)
Profit and loss A/c/ General reserve A/c * Dr. 25,000
To Capital redemption reserve A/c 25,000
(Being amount equal to nominal value of preference
shares transferred to Capital Redemption Reserve
A/c on its redemption as per the law i.e. face value of
shares redeemed 65,000 less fresh equity shares
issued ` 40,000)
Profit and Loss A/c ** Dr. 6,500
To Premium on redemption of preference 6,500
shares A/c
(Being premium on preference shares adjusted from
Securities Premium A/c)

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Profit & Loss/ General reserve A/c* Dr. 11,250

To Bonus to shareholders A/c 11,250
(Being 50 paisa for 22,500 shares making partly) paid
up as fully paid up)
Share final call A/c Dr. 11,250
To Equity share capital A/c 11,250
(for making the final call due)
Bonus to shareholders A/c Dr. 11,250
To Equity share final call A/c 11,250
(Adjusted at final call)
July 1 Capital Redemption Reserve A/c Dr. 25,000
Securities Premium A/c Dr. 4,000
Capital Reserve A/c Dr. 500
Profit & Loss A/c / General Reserve* Dr. 23,500
To Bonus to shareholders A/c 53,000
(Being balance in reserves capitalized to issue bonus
shares)
Bonus to shareholders A/c Dr. 53,000
To Equity share capital A/c 53,000
(Being 5,300 fully paid equity shares of ` 10 each
issued as bonus in ratio of 1 share for every 5 shares
held (22,500+4,000) divided by 5)

Note: *Different combination of utilisation of available balances of general reserve and P&
L A/c is possible in the given entries.
** Securities premium has not been utilized for the purpose of premium payable on
redemption of preference shares assuming that the company referred in the question is
governed by Section 133 of the Companies Act, 2013 and hence the company has to
comply with the prescribed Accounting Standards.
*** As per the sequence of the information given in the question it has been considered
that the fresh issue of equity shares is made at the time of the redemption of preference
shares. Alternatively, it may be assumed that shares are issued after the redemption of
preference shares. In that case the amount transferred to Capital Redemption Reserve
will get changed.

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 26 INTERMEDIATE EXAMINATION: MAY 2022

(b) In the books of walkaway footwears

Patna Branch Stock Account
Amount
Particulars Particulars Amount
(`) (`)
1.1.21 To Balance b/d 12,000 31.12.21 By Bank A/c (Cash 46,000
Goods sent to sales)
31.12.21 To branch A/c 1,32,000 By Branch debtors 1,00,000
A/c (credit sales)
To Branch 20,000 31.12.21 By Shortage in stock 400
adjustment A/c A/c
(Surplus over By Balance c/d 17,600
invoice price)
1,64,000 1,64,000
Patna Branch Adjustment Account
Particulars
Amount Particulars Amount
(`) (`)
31.12.21 To Stock reserve - 6,600 31.12.21 By Stock reserve – 4,500
` 17,600 x ` 12,000 x
60/160 (closing 60/160
stock) (Opening stock)
To Shortage 150 By Goods sent to 49,500
(400x 60/160) branch A/c
To Branch profit & 67,250 (` 1,32,000 x
loss A/c (Gross 60/160)
profit)
By Branch stock 20,000
A/c
74,000 74,000
Branch Profit & Loss Account
Particulars Amount Particulars Amount
(`) (`)
To Branch expenses A/c 17,500 By Branch adjustment A/c 67,250
To Shortage in stock A/c 250 (Gross Profit)
To Net profit (transferred to Profit &
Loss A/c) 49,500
67,250 67,250

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Branch Debtors Account

Particulars Amount Particulars Amount
(`) (`)
1.1.21 To Balance b/d 10,000 31.12.21 By Bank A/c 85,000
31.12.21 To Branch stock 1,00,000 By Balance c/d 25,000
A/c (bal. fig.)
1,10,000 1,10,000

Question 6
Answer any four of the following:
(a) The following information is provided by Exe Limited for 31st March,2022:
Particulars `
Net Profit before Income Tax and Managerial Remuneration, but after
Depreciation and Provision for Repairs 9,40,000
Depreciation provided in the Books 4,05,000
Provision for repairs for Machinery during the year 35,000
Depreciation Allowable under Schedule II 3,40,000
Actual Expenditure incurred on Repairs during the year 25,000
Provision for Income Tax 1,50,000
You are required to calculate the Managerial Remuneration for Exe Limited as on 31 st
March, 2022 in the following situations:
(i) There is only one Whole Time Director.
(ii) There are two Whole Time Directors.
(iii) There are two Whole Time Directors, a part time Director and a Manager.
(b) Following is the extract of the Balance Sheet of Sujata Foods Limited as at
31st March,2021:
Particulars `
Authorised Capital
1,00,000 12% Preference shares of ` 10 each 10,00,000
5,00,000 Equity shares of ` 10 each 50,00,000
60,00,000
Issued and Subscribed capital
8,000 12% Preference shares of ` 10 each fully paid 80,000

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 28 INTERMEDIATE EXAMINATION: MAY 2022

90,000 Equity shares of ` 10 each, ` 8 paid up 7,20,000

Reserves and Surplus
General Reserve 1,20,000
Capital Redemption Reserve 75,000
Securities Premium (Collected in cash) 25,000
Profit and Loss Account 2,00,000
Revaluation Reserve 80,000
On 1st April 2021, the company has made final call @ ` 2 each on 90,000 equity shares.
The call money was received by 15 th April,2021. Thereafter, the company decided to
capitalize its reserves by way of bonus at the rate of one share for every four shares held,
it also decided that there should be minimum reduction in free reserves.
On 1st June 2021, the Company issued right shares at the rate of two shares for every five
shares held on that date at issue price of ` 12 per share. All the right shares were accepted
by the existing shareholders and the money was duly received by 20 th June,2021.
You are required to pass necessary journal entries in the books of the Sujata Foods Limited
for bonus issue and rights issue.
(c) State whether the following statements are 'True' or 'False'. Also give reason for your
answer.
(i) Certain fundamental accounting assumptions underline the preparation and
presentation of financial statements. They are usually specifically stated because
their acceptance and use are not assumed.
(ii) If fundamental accounting assumptions are not followed in presentation and
preparation of financial statements, a specific disclosure is not required.
(iii) All significant accounting policies adopted in the preparation and presentation of
financial statements should form part of the financial statements.
(iv) Any change in an accounting policy, which has a material effect should be disclosed.
Where the amount by which any item in the financial statements is affected by such
change is not ascertainable, wholly or in part, the facts need not to be indicated.
(d) The following information is provided by Alpha Limited, for the year ended
31st March, 2022:
(i) Net profit before taking into account income tax and income from law suits but after
taking into account the following items was ` 40 lakhs.
(ii) Depreciation on Fixed Assets ` 10 lakhs.
(iii) Discount on issue of Debentures written of ` 60,000.
(iv) Interest on Debentures paid ` 7,00,000.
(v) Book value of investments ` 6 lakhs (Sale of Investments for ` 6,40,000).

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(vi) Interest received on investments ` 1,20,000.

(vii) Compensation received ` 1,80,000 by the company in a suit filed.
(viii) Income tax paid ` 21,00,000
(ix) Current assets and current liabilities in the beginning and at the end of the year were
as detailed below:
As on 31.3.2021 As on 31.3.2022
` `
Stock 24,00,000 26,36,000
Sundry Debtors 4,16,000 4,26,200
Cash in hand 3,92,600 70,600
Bills Receivable 1,00,000 80,000
Bills Payable 90,000 80,000
Sundry Creditors 3,32,000 3,42,600
Outstanding Expenses 1,50,000 1,63,600

You are required to prepare Cash Flow Statement from Operating Activities in accordance
with AS-3 (revised) using the indirect method for the year ended 31 st March,2022.
(e) On 1st April 2021 Ms. Jayshree has 5,000 equity shares of Rama Limited (a listed company)
of face value of` 10 each. Ms. Jayshree has purchased the above shares at ` 15 per share
and paid a brokerage of 2% and stamp duty of 1 %.
On 15th May,2021 Ms. Jayshree purchased another 5,000 shares of Rama Limited at ` 18
including brokerage and stamp duty.
On 26th August,2021 Rama Limited issued one bonus equity share for every 1 equity share
held by the shareholders.
On 23rd October,2021 Rama Limited announced a Right Issue which entitles the holders
to subscribe 1 equity share for every 2 equity shares held at ` 20 per share. Shareholders
can exercise their rights in full or in part. Ms. Jayshree sold 1/4 th of entitlement to Mr. Mike
for a consideration of ` 10 per share and subscribed the rest on 1 st November 2021.
Ms. Jayshree also sold 10,000 shares at ` 25 per share on 1st November,2021.
The shares of Rama Limited were quoted at ` 11 per share on 31 st March,2022.
You are required to prepare Investment account for Ms. Jayshree for the year ended
31st March 2022. (4 Parts X 5 Marks = 20 Marks)

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 30 INTERMEDIATE EXAMINATION: MAY 2022

Answer
(a) Calculation of net profit u/s 198 of the Companies Act, 2013
` `
Net profit before income tax and managerial remuneration 9,40,000
but after depreciation and provision for repairs
Add: Depreciation provided 4,05,000
Provision for repairs 35,000 4,40,000
13,80,000
Less: Repairs 25,000
Depreciation as per schedule III 3,40,000 3,65,000
Profit u/s 198 10,15,000

Maximum Managerial remuneration under Companies Act, 2013

(i) When there is only one Whole time director: The remuneration payable to any one
managing director; or whole-time director or manager should not exceed 5% of the
net profits of the company. Therefore Managerial remuneration will be ` 50,750 i.e
5% of `10,15,000.
(ii) When there are two Whole time directors: if there are more than one such director,
remuneration should not exceed 10% of the net profits to all such directors and
manager taken together. Therefore Managerial remuneration will be `1,01,500 i.e
10% of `10,15,000.
(iii) When there are two whole time directors, a part time director and a manager, then
11% of the net profits of the company. Therefore Managerial remuneration will be
` 1,11,650 i.e 11% of `10,15,000.
(b) Journal Entries in the books of Sujata Foods Ltd.
2021 Dr. Cr.
` `
April 1 Equity Share Final Call A/c Dr. 1,80,000
To Equity Share Capital A/c 1,80,000
(Final call of ` 2 per share on 90,000 equity
shares made due)
April 15 Bank A/c Dr. 1,80,000

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To Equity Share Final Call A/c 1,80,000

(Final call money on equity shares received)
Capital Redemption Reserve A/c Dr. 75,000
Securities Premium A/c Dr. 25,000
General Reserve A/c Dr. 1,20,000
Profit and Loss A/c Dr. 5,000
To Bonus to Shareholders A/c 2,25,000
(Bonus issue of one share for every four
shares held, by utilising various reserves as
per Board’s resolution dated…….)
Bonus to Shareholders A/c Dr. 2,25,000
To Equity Share Capital A/c 2,25,000
(Capitalization of profit)
June 20 Bank A/c Dr. 5,40,000
To Securities Premium A/c 90,000
To Equity Share Capital A/c 4,50,000
(Being Right issue of 2 shares for every 5
shares held as per board resolution dated
………..)

(c) (i) False: As per AS 1 “Disclosure of Accounting Policies”, certain fundamental

accounting assumptions underlie the preparation and presentation of financial
statements. They are usually not specifically stated because their acceptance and
use are assumed. Disclosure is necessary if they are not followed.
(ii) False: As per AS 1, if the fundamental accounting assumptions, viz. Going Concern,
Consistency and Accrual are followed in financial statements, specific disclosure is
not required. If a fundamental accounting assumption is not followed, the fact should
be disclosed.
(iii) True: To ensure proper understanding of financial statements, it is necessary that all
significant accounting policies adopted in the preparation and presentation of
financial statements should be disclosed. The disclosure of the significant accounting
policies as such should form part of the financial statements and they should be
disclosed in one place.

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 32 INTERMEDIATE EXAMINATION: MAY 2022

(iv) False: Any change in the accounting policies which has a material effect in the current
period or which is reasonably expected to have a material effect in later periods
should be disclosed. Where such amount is not ascertainable, wholly or in part, the
fact should be indicated.
(d) Alpha Ltd.
Cash Flow Statement (from Operating Activities)
for the year ended 31 st March, 2022
` `
Cash flow from Operating Activities
Net profit before income tax and extraordinary items: 40,00,000
Adjustments for:
Depreciation on Property, plant and equipment 10,00,000
Discount on issue of debentures 60,000
Interest on debentures paid 7,00,000
Interest on investments received (1,20,000)
Profit on sale of investments (40,000) 16,00,000
Operating profit before working capital changes 56,00,000
Adjustments for:
Increase in inventory (2,36,000)
Increase in Sundry Debtors (10,200)
Decrease in Bills receivables 20,000
Increase in Sundry Creditors 10,600
Increase in Bills payables (10,000)
Increase in outstanding expenses 13,600 (2,12,000)
Cash generated from operations 53,88,000
Income tax paid (21,00,000)
Cash flow from ordinary items 32,88,000
Cash flow from extraordinary items:
Compensation received in a suit filed 1,80,000
Net cash flow from operating activities 34,68,000

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(e) In the books of Ms. Jayshree

Investment Account
(Equity shares in Rama Ltd.)
Date Particulars No. of Amount Date Particulars No. of Amount
shares (`) shares (`)
1.4.21 To Balance b/d 5,000 77,250 1.11.21 By Bank A/c 10,000 2,50,000
15.5.21 To Bank A/c 5,000 90,000
26.8.21 To Bonus issue 31.3.22 By Balance c/d 17,500 1,92,500
(W.N.1) 10,000 ---
1.11.21 To Bank A/c 31.3.22 By Profit & Loss 9,386
(right shares) A/c (loss on
(W.N.4) 7,500 1,50,000 valuation)
1.11.21 To Profit & 1,34,636
Loss A/c
27,500 4,51,886 27,500 4,51,886

Working Notes:
(1) Profit on sale of shares (average cost basis) on 1.11.21
10,000 shares @ ` 25 per share = 2,50,000
Cost of shares sold = [(77,250 + 90,000 + 1,50,000)/27,500 x 10,000]
= ` 1,15,364
Profit on sale of shares = ` 1,34,636
(2) Value of shares on 31.3.22 [(77,250 + 90,000 + 1,50,000)/27,500 x 17,500]
= ` 2,01,886 or ` 1,92,500 (17,500 shares at ` 11)
Shares will be valued at `, 1,92,500 as market value is less than cost.
Note: Average cost basis has been considered for valuation of shares at the year end and
for calculation of cost of shares sold in the given answer.

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 PAPER – 1 : ACCOUNTING
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions may be made and indicated in answer by the
candidates.
Working Notes should form part of the answer.
Question 1
(a) (i) PP Ltd. an Indian Company acquired long term finance from WW (P) Ltd. a U.S.
company, amounting to ` 40,88,952. The transaction was recorded at US $1 =
` 72.00, taking exchange rate prevailing at the date of transaction. The exchang e
rate on balance sheet date (31.03.2021) is US $1 = ` 73.60.
(ii) Trade receivables of PP Ltd. include amount receivable from Preksha Ltd.,
` 20,00,150 recorded at the prevailing exchange rate on the date of sales,
transaction recorded at US $1 = ` 73.40. The exchange rate on balance sheet date
(31.03.2021) is US $1 = ` 73.60. Exchange rate on 1 st April, 2020 is US $1 =
` 74.00.
You are required to calculate the amount of exchange difference and also explain the
accounting treatment needed in the above two cases as per AS 11 in the books of PP
Ltd.
(b) Following are the extracts from the Balance Sheet of ABC Ltd.
Liabilities 31.3.2020 31.3.2021
(`) (`)
Equity Share Capital 25,00,0000 35,60,000
10% Preference Share Capital 7,00,000 6,00,000
Securities Premium Account 5,00,000 5,50,000
Profit & Loss A/c 20,00,000 28,00,000
Equity Share Capital for the year ended 31 st March, 2021 includes ` 60,000 of equity
shares issued to Grey Ltd. at par for supply of Machinery of ` 60,000.
Profit & Loss account on 31st March, 2021 includes ` 50,000 of dividend received on
Equity shares invested in X Ltd.
Show how the related items will appear in the Cash Flow Statement of ABC Ltd. as per
AS-3 (Revised)

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 2 INTERMEDIATE (NEW) EXAMINATION: DECEMBER, 2021

(c) Mr. Mohan has invested some money in various Mutual funds. Following information in
this regard is given:
Mutual Date of Purchase Brokerage Stamp Market value as on
Funds purchase cost (`) Cost (`) duty (`) 31.03.2021 ( `)
A 01.05.2017 50,000 200 20 48,225
B 05.08.2020 25,000 150 25 24,220
C 01.01.2021 75,000 300 75 78,190
D 07.05.2020 70,000 275 50 65,880
You are required to:
1. Classify his investment in accordance with AS-13 (revised).
2. Value of Investment in mutual fund as on 31.03.2021
(d) (i) ABC Ltd. was previously making provision for non-moving stocks based on stocks
not issued for the last 12 months up to 31.03.2020. Now, the company wants to
make provisions based on technical evaluation during the year ending 31.03.2021.
Total value of stock ` 133.75 lakhs
Provision required based on technical evaluation ` 4.00 lakhs
Provision required based on 12 months not issued ` 5.00 lakhs.
(ii) In the Books of Kay Ltd., Closing stock as on 31 st March, 2021 amounts to
` 1,24,000 (on the basis of FIFO method)
The company decides to change from FIFO method to weighted average method for
ascertaining the cost of inventory from the year 2020-2021. On the basis of
weighted average method, closing stock as on 31 st March, 2021 amounts to
` 1,15,000. Realisable value of the inventory as on 31 st March, 2021 amounts to
` 1,54,000.
Discuss Disclosure Requirements of change in accounting policy in above cases as per
AS 1. (4 Parts x 5 Marks = 20 Marks)
Answer
(a) (i) Long term Finance
Foreign Currency `
Rate
Initial recognition US $ 56,791 (40,88,952/72) 1 US $ = ` 72 40,88,952
Rate on Balance sheet date 1 US $ = ` 73.60
Exchange Difference Loss [US $ 56,791 x 90,866
(73.60 – 72)] (rounded off)

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 PAPER – 1 : ACCOUNTING 3

As per AS 11 “The Effects of Changes in Foreign Exchange Rates”, exchange

differences arising on the settlement of monetary items or on reporting an
enterprise’s monetary items at rates different from those at which they were initially
recorded during the period, or reported in previous financial statements, should be
recognized as income or as expenses in the period in which they arise.
However, at the option of an entity, exchange differences arising on reporting of
long-term foreign currency monetary items at rates different from those at which
they were initially recorded during the period, or reported in pre vious financial
statements, in so far as they relate to the acquisition of a non-depreciable capital
asset can be accumulated in a “Foreign Currency Monetary Item Translation
Difference Account” in the enterprise’s financial statements and amortized over t he
balance period of such long-term asset/ liability, by recognition as income or
expense in each of such periods.
Treatment needed in this case: PP Ltd. can either Debit Foreign Currency Monetary
Item Translation Difference (FCMITD) A/c or Debit Profit and Loss A/c by ` 90,866
and Credit Loan A/c
(ii) Trade Receivables
Foreign Currency `
Rate
Initial recognition US $ 27,250 (20,00,150/ 1 US $ = ` 73.40 20,00,150
73.40)
Rate on Balance sheet date 1 US $ = ` 73.60
Exchange Difference Gain [US $ 27,250 X 5,450
(73.60-73.40)]
As per AS 11 “The Effects of Changes in Foreign Exchange Rates”, exchange
differences on trade receivables amounting ` 5,450 is required to be transferred to
Profit and Loss A/c.
Treatment needed in this case: Credit Profit and loss account by ` 5,450.
(b) The related items given in the question will appear in the Cash Flow Statement of ABC
Limited for the year ended 31st March, 2021 as follows:
` `
Cash flows from operating activities
Closing Balance as per Profit and Loss Account 28,00,000
Less: Opening Balance as per Profit and Loss Account (20,00,000)
8,00,000
Less: Dividend received 50,000
7,50,000

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 4 INTERMEDIATE (NEW) EXAMINATION: DECEMBER, 2021

Cash flows from investing activities

Dividend received 50,000
Cash flows from financing activities
Proceeds from issuance of share capital
Equity shares issued for cash ` 10,00,000
Proceeds from securities premium
(` 5,50,000 – 5,00,000) ` 50,000
10,50,000
Less: Redemption of Preference shares
(` 7,00,000 – ` 6,00,000) (1,00,000) 9,50,000
Note:
1. Machinery acquired by issue of shares does not amount to cash outflow, hence also
not considered in the cash flow statement.
2. ABC Ltd. has been considered as a non-financial company in the given answer.
(c) As per AS 13 “Accounting for Investments”, a current investment is an investment that is
by its nature readily realizable and is intended to be held for not more than one year from
the date on which such investment is made. The carrying amount for current invest ments
is the lower of cost and fair value.
A long-term investment is an investment other than a current investment. Long term
investments are usually carried at cost. If there is a decline, other than temporary, in the
value of a long-term investment; the carrying amount is reduced to recognize the decline.
Mutual Classification Cost (`) Market value (`) Carrying value (`)
Funds
A Long-term Investment 50,220 48,225* 50,220
B Current Investment 25,175 24,220 24,220
C Current Investment 75,375 78,190 75,375
D Current Investment 70,325 65,880 65,880
Total 2,15,695
Note: *The reduction in value of Mutual fund A is considered to be temporary. If
reduction in Market value is assumed as other than temporary in nature, then the
carrying value of `48,225 will be considered.
(d) (i) The decision of making provision for non-moving inventories on the basis of
technical evaluation does not amount to change in accounting policy. Accounting
policy of a company may require that provision for non-moving inventories should

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 PAPER – 1 : ACCOUNTING 5

be made. The method of estimating the amount of provision may be changed in

case a more prudent estimate can be made.
In the given case, considering the total value of inventory, the change in the amount
of required provision of non-moving inventory from ` 5 lakhs to ` 4 lakhs is also not
material. The disclosure can be made for such change in the following lines by way
of notes to the accounts in the annual accounts of ABC Ltd. for the year 2020 -21:
“The company has provided for non-moving inventories on the basis of technical
evaluation unlike preceding years. Had the same method been followed as in the
previous year, the profit for the year and the corresponding effect on the year end
net assets would have been lower by ` 1 lakh.”
(ii) As per AS 1 “Disclosure of Accounting Policies”, any change in an accounting policy
which has a material effect should be disclosed in the financial statements. The
amount by which any item in the financial statements is affected by such change
should also be disclosed to the extent ascertainable. Where such amount is not
ascertainable, wholly or in part, the fact should be indicated. Thus company should
disclose the change in valuation method of inventory and its effect on financial
statements. The company may disclose the change in accounting policy in the
following manner:
“The company values its inventory at lower of cost and net realizable value. Since
net realizable value of all items of inventory in the current year was greater than
respective costs, the company valued its inventory at cost. In the present year i.e.
2020-21, the company has changed to weighted average method, which better
reflects the consumption pattern of inventory, for ascertaining inventory costs from
the earlier practice of using FIFO for the purpose. The change in policy has reduced
current profit and value of inventory by ` 9,000.”
Question 2
(a) The Godown of X Ltd. caught fire on 01.06.2021, records saved from fire shows the
following particulars:
`
Stock at cost on 01.01.2020 50,000
Stock at cost on 31.12.2020 80,000
Purchases for the year 2020 4,75,000
Purchase returns for the year 2020 5,000
Carriage inward for the year 2020 20,000
Sales for the year 2020 5,60,000
Sales returns for the year 2020 10,000

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 6 INTERMEDIATE (NEW) EXAMINATION: DECEMBER, 2021

Following information is given for the period of 1 st January 2021 to 1st June, 2021:
Credit sales of ` 2,50,000, which constituted 25% of total sales.
Sales return ` 9,500, Goods used for personal purpose costing ` 5,000,
Good distributed as free sample costing ` 2,700, Wages ` 25,000.
Sales include goods sold on approval basis amounting to ` 81,000, no confirmation had
been received in respect of 50% of such goods sold on approval basis.
Stock on 31 December, 2020 was calculated at 20% less than cost.
Purchases for the period 1st January, 2021 to 1 st June, 2021 is ` 6,75,000, purchase
returns ` 10,000.
Selling price was increased by 20% with effect from 01.01.2021.
Company had taken an insurance policy of ` 70,000 which was subject to an average
clause. The value of salvaged goods was ` 21,967. You are required to compute the
amount of the claim.
(b) During the year ended 31 st March, 2021, Purple Ltd. entered into the following
transactions:
1st April, 2020 Purchased ` 4,00,000, 10% Govt. loan 1(interest payable on
30th April and 31 st October) at ` 70 cum interest.
1st April, 2020 Purchased 6,000 Equity shares of ` 5 each in XY Ltd. for
` 1,26,000.
1st October, 2020 Sold ` 80,000, 10% Govt. loan at `75 ex-interest.
15th January, 2021 XY Ltd. made a bonus issued of four equity shares for every three
shares held. Purple Ltd. sold all of the bonus shares for ` 10 each.
1st March, 2021 Received dividend @ 22% on shares in XY Ltd. for the year ended
31st December, 2020.
Prepare Investment accounts in the books of Purple Ltd. (10 + 10 = 20 Marks)
Answer
(a) X Ltd.
Trading Account for the year ending 31 st December, 2020
(To determine the rate of gross profit)
` ` `
To Opening Stock 50,000 By Sales A/c 5,50,000
(5,60,000 – 10,000)

1 Face value of Govt. loan to be read as ` 100.

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 PAPER – 1 : ACCOUNTING 7

To Purchases 4,70,000 By Closing Stock: 1,00,000

(4,75,000 – 5,000) (80,000/80x100)
To Carriage inward 20,000
To Gross Profit (b.f.) 1,10,000
6,50,000 6,50,000
The (normal) rate of gross profit to sales is = ` 1,10,000/ 5,50,000 x100= 20%
Memorandum Trading Account for the period
1st January, 2021 to 1 st June, 2021
` `
To Opening Stock 1,00,000 By Sales (W.N. 2) 9,50,000
To Purchases 6,75,000 By Goods with customers 27,000
Less: Returns (10,000) (for approval) (W.N.1)*
Samples (2,700) By Closing stock (Bal. 1,21,967
fig.)
Drawings (5,000) 6,57,300
To Wages 25,000
To Gross Profit [1/3of
Sales - Refer W.N. 3] 3,16,667
10,98,967 10,98,967
* For financial statement purposes, this would form part of closing stock (since there is
no sale). However, this has been shown separately for computation of claim for loss of
stock since the goods were physically not with the concern and, hence, there was no loss
of such stock as a result of fire.
Statement of claim for loss of stock on 18.06.2021
Book value of stock ` 1,21,967
Less: Salvaged value of stock ` 21,967
Loss of stock 1,00,000
Insured Value 57,393
Amount of claim = x Loss of stock ( rounded off )
Total cost of stock on the date of fire
 70,000 
 1,21,967  1,00,000 
 
A claim of ` 57,393 (rounded off) should be lodged to the insurance company.

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 8 INTERMEDIATE (NEW) EXAMINATION: DECEMBER, 2021

Working Notes:
1. Calculation of goods with customers
Since no approval for sale has been received for the goods of ` 40,500 (i.e. 1/2 of
` 81,000) hence, these should be valued at cost i.e. ` 27,000 (40,500/120 x 80)
2. Calculation of actual sales
Total sales – Returns - Sale of goods on approval (1/2)
= ` 10,00,000 – ` 9,500 – ` 40,500 (81,000/2) = ` 9,50,000
3. Calculation of Gross Profit Ratio
For year 2020 : Cost of goods sold was 80, Gross profit rate 20% and sales 100
For year 2021 : Cost of goods sold was 80, Gross profit rate 33.33% (1/3 of sales)
and sales 120
Note: It is given in the question, that selling price was increased by 20% with effect from
01.01.2021. While solving the question in the given answer, new gross profit ratio has
been computed and applied to arrive at the value of closing stock. Alternatively, instead
of computing new gross profit ratio, sales can be reduced to the levels before increase
and old gross profit ratio can be applied to arrive at the value of closing stock.
(b) In the books of Purple Ltd.
10% Govt. Loan
[Interest Payable: 30th April & 31st October]
Date ParticularsNominal Interest Cost Date Particulars Nominal Interest Cost
Value(`) (`) (`) Value (`) (`) (`)
1.4.20 To Bank A/c 4,00,000 16,667 2,63,333 30.4.20 By Bank A/c - 20,000 -
(W.N.1) (4,00,000 x
10% x 6/12)
1.10.20 To Profit & 1.10.20 By Bank A/c
Loss A/c 7,333 (W.N.2) 80,000 3,333 60,000
(W.N 5)
31.10.20 By Bank A/c - 16,000 -
31.3.21 To Profit & 31.3.21 By Balance
Loss A/c 35,999 c/d (W.N.3) 3,20,000 13,333 2,10,666
4,00,000 52,666 2,70,666 4,00,000 52,666 2,70,666

Investment in Equity Shares of XY Ltd. Account (of ` 5 each)

Date Particulars No. Dividend Cost Date Particulars No. Dividend Cost
(`) (`) (`) (`)
1.4.20 To Bank A/c 6,000 1,26,000 15.1.21 By Bank A/c 8,000 80,000
15.1.21 To Bonus Issue 8,000 1.3.21 By Bank A/c 4,950 1,650
15.1.21 To Profit & Loss A/c. 8,000 (W.N.6)

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 PAPER – 1 : ACCOUNTING 9

(W.N.4)
31.3.21 To Profit & Loss A/c 4,950 31.3.21 By Balance 6,000 52,350
c/d
14,000 4,950 1,34,000 14,000 4,950 1,34,000

Working Notes:
1. Cost of investment purchased on 1 st April, 2020
4,000, 10% Govt. loan were purchased @ ` 70 cum-interest. Total amount paid
4,000 bonds x ` 70 = 2,80,000 which includes accrued interest for 5 months, i.e.,
1st November, 2020 to 31 st March, 2021. Accrued interest will be ` 4,00,000 x 10% x
5/12 = ` 16,667. Therefore, cost of investment purchased = ` 2,80,000 – ` 16,667
= ` 2,63,333.
2. Sale of 10% Govt. loan on 1 st October, 2020
800, 10% Govt. loan were sold@ ` 75 ex-interest, i.e., Total amount received = 800
x 75 + accrued interest for 5 months = ` 60,000 + ` 3333
3. Cost of 10% Govt. loan on 31.3.2021
Cost of 10% Govt. loan on 31.3.2021 will be ` 2,63,333 x 3,20,000/4,00,000
= ` 2,10,666.
Interest accrued on 10% Government Loan on 31.3.2021 = ` 3,20,000 x 10% x 5/12
= ` 13,333
4. Profit on sale of bonus shares
Cost per share after bonus = ` 1,26,000/ 14,000 = ` 9 (average cost method being
followed)
Profit per share sold (` 10 – ` 9) = ` 1.
Therefore, total profit on sale of 8,000 shares = 8,000 x ` 1 = ` 8,000.
5. Profit on sale of 10% Govt. loan `
Sale value = 60,000
Cost of ` 80,000 10% Government Loan = 2,63,333 x 80,000/ 4,00,000 = 52,667
Profit = 7,333
6. Dividend on equity shares = 6,000 x 5 x 22% = ` 6,600 out of which ` 1,650 will be
treated as capital receipt as it has been received for the period of 3 months during
which shares were not held.
Note: It has been considered that dividend received relates for the period of 12 months
ended 31st Dec., 2020, strictly based on the information, given in the question. Hence,
dividend received for the period of 3 months (1st January, 20 to 31st March, 20) has been
treated as pre-acquisition.

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 10 INTERMEDIATE (NEW) EXAMINATION: DECEMBER, 2021

Question 3
(a) Delta Ltd. has a branch at Kanpur. Goods are invoiced from head office to Branch at
cost plus 50%. Branch remits all cash received to head office and all expenses are met
by head office.
Prepare necessary Ledger accounts in the books of Delta Ltd. under Stock and Debtors
system to show profit earned at the branch for the year ending 31 st March, 2021.
Following information related to Branch is given:
Stock on 1st April, 2020 31,200 Goods returned by Debtors 3,000
(Invoice price)
Debtors on 1 st April, 2020 17,400 Surplus in stock (Invoice price) 600
Goods invoiced at cost 72,000 Expenses at Branch 13,400
Sales at Branch: Cash sales 20,000 Discount allowed to Debtors 700
Credit sales 68,200 Debtors on 31 st March, 2021 14,300
(b) M/s Wee has two Departments X and Y. From the following particulars, Prepare
Departmental Trading Account and Consolidated Trading Account for the year ending
31st March, 2021.
Particulars Department X Department Y
` `
Opening stock (at Cost) 1,40,000 1,08,000
Purchases 4,28,000 3,32,000
Carriage inwards 12,000 12,000
Carriage outwards 5,000 4,000
Wages 42,000 48,900
Sales 5,70,000 4,74,000
Purchased goods transferred by Dept. Y to Dept. X 60,000 -
Purchased goods transferred by Dept. X to Dept. Y - 48,000
Finished goods transferred by Dept. Y to Dept. X 1,60,000 -
Finished goods transferred by Dept. X to Dept. Y - 2,00,000
Closing Stock of Purchased Goods 24,000 30,000
Closing Stock of Finished Goods 1,54,000 1,20,000
Purchased goods have been transferred mutually at their respective departmental
purchase cost and finished goods at departmental market price and that 15% of the
finished stock (closing) at each department represented finished goods received from the
other department. (10 + 10 = 20 Marks)

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Answer
(a) Books of Delta Ltd.
Kanpur Branch Stock Account
` `
To Balance b/d – 31,200 By Bank A/c – Cash Sales 20,000
Opening Stock
To Branch Debtors A/c – 3,000 By Branch Debtors A/c - Credit 68,200
Sales Return Sales
To Goods sent to Branch 1,08,000 By Balance c/d - Closing stock 54,600
A/c (72,000 +50% of
72,000)
To Surplus in stock 600
1,42,800 1,42,800
Kanpur Branch Stock Adjustment Account
` `
To Branch Profit and Loss 28,400 By Balance b/d 10,400
Account (1/3 of ` 31,200)
To Balance c/d By Goods sent to Branch 36,000
(1/3 of 54,600) 18,200 A/c (1/3 of ` 1,08,000)
By Surplus in stock 200
46,600 46,600
Goods Sent to Branch Account
` `
To Kanpur Branch Stock 36,000 By Kanpur Branch Stock 1,08,000
Adjustment A/c A/c
To Purchases A/c 72,000
1,08,000 1,08,000
Branch Debtors Account
` `
To Balance b/d 17,400 By Bank (Bal fig.) 67,600
To Branch Stock A/c 68,200 By Branch Expenses A/c (Discount 700
allowed)
By Branch Stock - Sales Returns 3,000

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 12 INTERMEDIATE (NEW) EXAMINATION: DECEMBER, 2021

By Balance c/d 14,300

85,600 85,600
Branch Expenses Account
` `
To Bank A/c 13,400 By Branch Profit & Loss 14,100
(expenses) A/c (Transfer)
To Branch Debtors A/c 700
(Discount allowed)*
14,100 14,100
Branch Profit & Loss Account for the year ending 31st March 2021
` `
To Branch Expenses A/c 14,100 By Branch Adjustment A/c 28,400
To Net Profit 14,700 By surplus in stock (Cost) 400
28,800 28,800

Note: * Discount allowed to debtors may be shown in Branch Profit and Loss account
directly instead of transferring it through Branch Expenses account.
(b) M/s Wee
Departmental Trading A/c for the year ending 31st March, 2021
Deptt. Deptt. Y Deptt. X. Deptt. Y
X.
` ` ` `
To Stock 1,40,000 1,08,000 By Sales 5,70,000 4,74,000
To Purchases 4,28,000 3,32,000 By Purchased Goods 48,000 60,000
transferred
To Wages 42,000 48,900 By Finished goods 2,00,000 1,60,000
transferred
To Carriage inward 12,000 12,000 By Closing Stock:
To Purchased Goods Purchased Goods 24,000 30,000
transferred 60,000 48,000 Finished Goods 1,54,000 1,20,000
To Finished Goods 1,60,000 2,00,000
transferred
To Gross profit c/d
(b.f.) 1,54,000 95,100
9,96,000 8,44,000 9,96,000 8,44,000

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 PAPER – 1 : ACCOUNTING 13

Consolidated Trading Account for the year ending 31st March 2021
` `
To Opening Stock 2,48,000 By Sales 10,44,000
To Purchases 7,60,000 By Closing Stock:
To Wages 90,900 Purchased Goods 54,000
To Carriage inward 24,000 Finished Goods 2,74,000
To Stock Reserve* 7,065
To Gross Profit c/d 2,42,035
13,72,000 13,72,000
Working Note:
Deptt. X Deptt. Y
Sale 5,70,000 4,74,000
Add: Transfer 2,00,000 1,60,000
Net Sales plus Transfer 7,70,000 6,34,000
Rate of Gross profit 1,54,000/7,70,000 x 100 = 20% 95,100/6,34,000 x 100 = 15%
Closing Stock out of
1,54,000 x 15% = 23,100 1,20,000 x 15% = 18,000
transfer
(15% of closing stock)
Unrealized Profit 23,100 × 15% = 3,465 18,000 × 20% = 3,600
Note: *Stock reserve has been shown separately in the above solution and the closing
stock has been given at the full value without reducing stock reserve from it.
Alternatively, stock reserve may not be shown and the closing stock can be shown at the
net amount (after deducting amount of stock reserve).
Question 4
The following is the summarized Balance Sheet of R Limited as at 31 st March, 2021:
`
Liabilities
Authorized Capital
1,50,000 Equity shares of ` 10 each 15,00,000
30,000 10% Redeemable Preference shares of ` 100 each 30,00,000
45,00,000
Issued, subscribed and paid up
90,000 Equity shares of ` 10 each 9,00,000
15,000 10% Redeemable Preference shares of ` 100 each 15,00,000

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 14 INTERMEDIATE (NEW) EXAMINATION: DECEMBER, 2021

Reserves & Surplus

Securities Premium 18,00,000
General Reserve 16,50,000
Profit & Loss A/c 1,20,000
7500, 9% Debentures of ` 100 each 7,50,000
Trade Payables 2,12,500
69,32,500
Assets
Non-Current Assets
Property Plant & Equipment 31,60,000
Investments (Market Value, ` 17,40,000) 14,70,000
Trade Receivables 17,60,000
Cash & Bank Balance 5,42,500
69,32,500
In Annual General Meeting held on 15 th May, 2021 the company passed the following
resolutions:
(i) To redeem 10% preference shares at a premium of 5%.
(ii) To redeem 9% Debentures by making offer to Debenture holders to convert their holding
into equity shares at ` 40 per share or accept cash on redemption.
(iii) To issue fully paid bonus shares in the ratio of one equity share for every three shares
held on 31st March, 2021.
(iv) Redemption of preference shares and debentures will be paid through company’s cash &
bank balance subject to leaving a minimum cash & bank balance of ` 2,00,000.
(v) To issue sufficient number of equity shares @ ` 40 per share if required to finance
redemption of Preference Shareholders and debenture holders.
On 5th June, 2021 investments were sold for ` 16,80,000 and preference shares were
redeemed.
30% of Debenture holders exercised their option to accept cash and their claims were settled
on 1st August, 2021. The bonus issue was concluded by 10th August, 2021.
You are requested to journalize the above transactions including cash transactions and
prepare Balance Sheet as at 30 th September, 2021. All working notes should form part of your
answer. (20 Marks)

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Answer
Journal Entries in the Books of R Limited
` `
June 5 Cash & Bank A/c Dr. 16,80,000
To Investment A/c 14,70,000
To Profit & Loss A/c 2,10,000
(Being investment sold out and profit on sale credited
to Profit & Loss A/c)
June 5 10% Redeemable preference share capital A/c 15,00,000
Premium on redemption of pref. share A/c Dr. 75,000
To Preference shareholders A/c 15,75,000
(Being amount payable to preference shareholders on
redemption)
June 5 Preference shareholders A/c Dr. 15,75,000
To Cash & bank A/c 15,75,000
(Being amount paid to preference shareholders)
June 5 General reserve* A/c Dr. 15,00,000
To Capital redemption reserve A/c 15,00,000
(Being amount equal to nominal value of preference
shares transferred to Capital Redemption Reserve A/c
on its redemption as per the law)
Aug. 1 9% Debentures A/c Dr. 7,50,000
Interest on debentures A/c 22,500
(` 7,50,000 x 9% x 4/12)
To Debenture holders A/c 7,72,500
(Being amount payable to debenture holders along with
interest payable)
Aug. 1 Debenture holders A/c Dr. 7,72,500
To Cash & bank A/c (2,25,000 + 22,500) 2,47,500
To Equity share capital A/c (13,125 X` 10) 1,31,250
To Securities premium A/c (13,125 x ` 30) 3,93,750
(Being claims of debenture holders satisfied) (refer
W.N.1)
Aug. 10 Capital Redemption Reserve A/c Dr. 3,00,000

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 16 INTERMEDIATE (NEW) EXAMINATION: DECEMBER, 2021

To Bonus to shareholders A/c 3,00,000

(Being balance in capital redemption reserve
capitalized to issue bonus shares)
Aug. 10 Bonus to shareholders A/c Dr. 3,00,000
To Equity share capital A/c 3,00,000
(Being 30,000 fully paid equity shares of ` 10 each
issued as bonus in ratio of 1 share for every 3 shares
held)
Sept.30 General Reserve  A/c Dr. 75,000
To Premium on redemption of preference 75,000
shares A/c
(Being premium on preference shares adjusted from
general reserve)
Sept.30 Profit & Loss A/c Dr. 22,500
To Interest on debentures A/c 22,500
(Being interest on debentures transferred to Profit and
Loss Account)
Balance Sheet as at 30 th September, 2021
Particulars Notes `
Equity and Liabilities
1 Shareholders' funds
a Share capital 1 13,31,250
b Reserves and Surplus 2 37,76,250
2 Current liabilities
a Trade Payables 2,12,500
Total 53,20,000
Assets
1 Non-current assets
a Property, Plant and Equipment 31,60,000
2 Current assets
a Trade receivables 17,60,000
b Cash and bank balances (W.N.2) 4,00,000
Total 53,20,000


Alternatively, Profit & Loss A/c may also be used for the amount available.

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 PAPER – 1 : ACCOUNTING 17

Notes to accounts:
` `
1 Share Capital
Authorized share capital
1,50,000 Equity shares of ` 10 each 15,00,000
30,000 Redeemable Preference shares of ` 100 each 30,00,000
Issued, subscribed and paid up
1,33,125 Equity shares of ` 10 each
[90,000+13,125+30,000] (Out of which 1,33,125 shares were 13,31,250
issued for the consideration other than cash)
2 Reserves and Surplus
Securities Premium
Balance as per balance sheet 18,00,000
Add: Premium on equity shares issued on
conversion of debentures (13,125 x 30) 3,93,750
Balance 21,93,750
Capital Redemption Reserve (15,00,000 - 3,00,000) 12,00,000
General Reserve
Opening Balance 16,50,000
Less Transfer to Capital Redemption Reserve (15,00,000)
1,50,000
Less: Premium on redemption of preference shares (75,000) 75,000
Profit & Loss A/c 1,20,000
Add: Profit on sale of investment 2,10,000
Less: Interest on debentures (22,500) 3,07,500
Total 37,76,250
Working Notes:
`
1. Redemption of Debentures
7,500 Debentures of ` 100 each 7,50,000
Less: Cash option exercised by 30% holders (2,25,000)
Conversion option exercised by remaining 70% 5,25,000
Equity shares issued on conversion = 5,25,000/40 = 13,125 shares

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 18 INTERMEDIATE (NEW) EXAMINATION: DECEMBER, 2021

2. Cash and Bank Balance

Balance as per balance sheet 5,42,500
Add: Realization on sale of investment 16,80,000
22,22,500
Less: Paid to preference share holders (15,75,000)
Paid to Debenture holders (2,25,000 + 22,500) (2,47,500)
Balance 4,00,000
Note:
1. There is no need to issue fresh equity shares as the company is having sufficient cash
balance.
2. Securities premium has not been utilized for the purpose of premium payable on
redemption of preference shares assuming that the company referred in the question is
governed by Section 133 of the Companies Act, 2013 and comply with the Accounting
Standards prescribed for them. Alternative considering otherwise also possible by
utilizing securities premium.
Question 5
(a) Peek Ltd. was incorporated on 01.07.2020 to take over the existing business of Rich &
Co. with effect from 01.04.2020. Date of closing books of accounts is 31.03.2021.
Total sales were ` 75,00,000, Rate of Gross profit is 10% on sales.
The expenses charged to profit and loss statement include:
Salesmen’s Commission ` 30,000
Discount Allowed ` 15,000
Carriage outward ` 45,000
Free Sample ` 60,000
After sales service charge ` 90,000
Directors’ fees ` 1,50,000
Audit fees (Statutory audit of company) ` 70,000
Tax audit fees to Chartered Accountant ` 15,000
Salary to general staff ` 16,000
Formation Expenses ` 30,000
Rent (Office Building) ` 27,000
General Expenses ` 48,000
Donation to political party ` 51,000
General travelling Expenses ` 60,000

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 PAPER – 1 : ACCOUNTING 19

The sales per month in the first half year were half of what they were in the later half
year.
Rent of office building was paid @ ` 2,000 p.m. upto 30 th September, 2020 and
thereafter it was increase by ` 500 p.m.
Prepare a statement showing pre incorporation & post incorporation profit for the year
ended 31.03.2021 and also compute the amount to be transferred to capital reserve
account.
(b) ABC Ltd. acquired a Machine on hire purchase from P Ltd. with term of payment in four
equal annual installments. The annual installment is commencing from the date of
agreement signed by both the parties.
The payment of annual installment is ` 25,000 at the end of each year. The interest is
charged @ 25% and is included in the annual installment. ABC Ltd. could not pay third
annual installment and declared “Purchaser Defaulted” whereupon P Ltd. acted to
repossess the Machinery.
ABC Ltd. is providing depreciation on Machinery at the rate of 20% per annum on the
diminishing balance method.
You are required to prepare Machinery Account and P Ltd. account in the books of ABC
Ltd. Working notes will form part of the answer. (12 + 8 = 20 Marks)
Answer
(a) (i) Statement showing calculation of profits for pre and post incorporation
periods for the year ended 31.3.2021
Particulars Basis of Pre-incorpo- Post-incorpo-
allocation ration period ration period
` `
Gross profit Sales 1,25,000 6,25,000
Less: Salesmen commission Sales 5,000 25,000
Discount allowed Sales 2,500 12,500
Carriage outwards Sales 7,500 37,500
Free samples Sales 10,000 50,000
After sale service charges Sales 15,000 75,000
Director’s fee (post-incorporation) Post -- 1,50,000
Company Audit fee Post -- 70,000
Tax audit fee Sales 2,500 12,500
Salaries Time 4,000 12,000
Formation Expenses Post -- 30,000

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 20 INTERMEDIATE (NEW) EXAMINATION: DECEMBER, 2021

Rent (office building) W.N. 3 6,000 21,000

General expenses Time 12,000 36,000
Donation to political party
(assumed to be paid by company) Post -- 51,000
General Travelling expenses Sales 10,000 50,000
Net profit/loss (Bal. Fig.) 50,500 (7,500)
(ii) Transfer to capital reserve = Pre incorporation profit is treated as capital profit,
hence amount transfer to capital reserve is ` 50,500.
Working Notes:
1. Time Ratio
Pre incorporation period = 1 st April, 2020 to 30 th June, 2020 i.e. 3 months
Post incorporation period is 9 months
Time ratio is 1: 3.
2. Sales ratio
Let the monthly sales for first 6 months (i.e from 1.4.2020 to 30.09.2020) be x
Monthly sales for next 6 months (i.e. from 1.10.20 to 31.3.2021) = 2x
Sales in the pre incorporation period =3x
Total sales for post-incorporation period =3x+12x=15x
Sales Ratio = 1 : 5
3. Rent
`
Rent for pre-incorporation period (` 2,000 x 3) 6,000 (pre)
Rent for post incorporation period
July, August& September, 2020 (` 2,000 x 3) 6,000
October,2020 to March,2021 (` 2,500 x 6) 15,000 21,000 (post)
Note:
1. General Travelling expenses have been divided on the basis of turnover rat io.
Alternatively, it may be divided on time basis (1:3).
2. In the above solution, it has been assumed as donation is paid by the company.
Alternatively, it can be divided in time ratio also.

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 PAPER – 1 : ACCOUNTING 21

(b) In the books of ABC Ltd.

Machinery Account
` `
I Yr. To Hire Vendor A/c 73,800 I Yr. By Depreciation A/c 14,760
(W.N.)
By Balance c/d 59,040
73,800 73,800
II Yr. To Balance b/d 59,040 II Yr. By Depreciation A/c 11,808
By Balance c/d 47,232
59,040 59,040
III Yr. To Balance b/d 47,232 III Yr. By Depreciation A/c 9,446
By Hire Vendor 25,000
By Profit and Loss A/c
(Loss on surrender)
_____ (Balancing figure) 12,786
47,232 47,232
P Ltd. Account

` `
I Yr. To Bank A/c (1st Installment) 25,000 I Yr. By Machinery A/c 73,800
End of To Bank A/C (2nd 25,000
year Installment)
To Balance c/d 36,000 By Interest A/c 12,200
86,000 86,000
II Yr. To Bank A/c (3rd Installment) 25,000 II Yr. By Balance b/d 36,000
To Balance c/d 20,000 By Interest A/c 9,000
45,000 45,000
III Yr. To Machinery A/c 25,000 III Yr. By Balance b/d 20,000
(transfer) By Interest A/c 5,000
25,000 25,000

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 22 INTERMEDIATE (NEW) EXAMINATION: DECEMBER, 2021

Working Note:
Installment Amount Interest Principal
4th Installment 25,000 ` `
Interest 25,000 x 25/125 5,000 5,000 20,000
20,000
Add: 3rd Installment 25,000
45,000
Interest 45,000 x 25/125 9,000 9,000 16,000
36,000
Add: 2nd Installment 25,000
61,000
Interest 61,000 x 25/125 12,200 12,200 12,800
48,800
Add: 1st Installment
(Down Payment) 25,000 _____ 25,000
73,800 26,200 73,800
Note: In the question, it is given that “the annual instalment is commencing from the date
of agreement signed by both the parties. The payment of annual instalment ` 25,000 at
the end of each year”. It has been assumed in the above answer that first instalment is
paid on the date of agreement and rest instalments are paid at the end of each year.
Alternative answer assuming that the first instalment is paid at the end of first year is also
possible. The solution under this assumption will get changed and will be given as
follows:
Machinery Account
` `
I Yr. To Hire Vendor A/c (W.N.) 59,040 I Yr. By Depreciation A/c 11,808
By Balance c/d 47,232
59,040 59,040
II Yr. To Balance b/d 47,232 II Yr. By Depreciation A/c 9,446
By Balance c/d 37,786
47,232 47,232
III Yr. To Balance b/d 37,786 III Yr. By Depreciation A/c 7,557
To Profit and Loss A/c By Hire Vendor 45,000
(profit on surrender) 14,771
(Balancing figure)
52,557 52,557

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 PAPER – 1 : ACCOUNTING 23

P Ltd. Account
` `
I Yr. To Bank A/c 25,000 I Yr. By Machinery A/c 59,040
To Balance c/d 48,800 By Interest A/c 14,760
73,800 73,800
II Yr. To Bank A/c 25,000 II Yr. By Balance b/d 48,800
To Balance c/d 36,000 By Interest A/c 12,200
61,000 61,000
III Yr. To Machinery A/c (transfer) 45,000 III Yr. By Balance b/d 36,000
By Interest A/c 9,000
45,000 45,000
Working Note:
Instalment Amount Interest Principal
4th Instalment 25,000 ` `
Interest 25,000 x 25/125 5,000 5,000 20,000
20,000
Add: 3rd Instalment 25,000
45,000
Interest 45,000 x 25/125 9,000 9,000 16,000
36,000
Add: 2nd Instalment 25,000
61,000
Interest 61,000 x 25/125 12,200 12,200 12,800
48,800
Add: 1st Instalment 25,000
73,800
Interest 73,800 x 25/125 14,760 14,760 10,240
59,040 40,960 59,040
Question 6
Answer any four of the following:
(a) Mrs. A is showing the consolidated aggregate opening balance of equity, liabilities and
assets of ` 6 lakh, 4 lakh and 10 lakh respectively. During the current year Mrs. A has
the following transactions:
1. Received 20% dividend on 10,000 equity shares of ` 10 each held as investment.

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 24 INTERMEDIATE (NEW) EXAMINATION: DECEMBER, 2021

2. The amount of ` 70,000 is paid to creditors for settlement of ` 90,000.

3. Salary is pending by ` 20,000.
4. Mrs. A’s drawing ` 20,000 for her personal use.
You are required to prepare the statement of the effect of aforesaid each transaction on
closing balance sheet in the form of Assets – Liabilities = Equity after each transaction.
(b) X Ltd. a non investment company has been incurring losses for the past few years. The
company provides the following information for the current year:
` in lakhs
Paid up equity share capital 90
Paid up preference share capital 10
Reserves (including revaluation reserve ` 5 lakhs) 75
Securities premium 30
Long term loans 20
Deposit repayable after one year 10
Application money pending allotment 360
Accumulated losses not written off 40
Investment 90
X Ltd. has only one whole time director, Mr. Y. You are required to calculate the amount
of maximum remuneration that can be paid to him if no special resolution is passed at the
general meeting of the company in respect of payment of remuneration for a period not
exceeding three years.
(c) What is meant by ‘Measurement’? What are the bases of measurement of Elements of
Financial Statements? Explain the brief.
(d) A Company had issued 25,000, 12% Debentures of ` 100 each on 1 st April, 2018. The
Debentures were due for redemption on 1 st July, 2020. The terms of issue of Debentures
provided that they will be redeemable at a premium of 5% and also conferred option to
convert 20% of their holding into equity Shares (Nominal value ` 10 each) at a price of
` 20 per share.
Debenture holders holding 5,000 Debentures did not exercise the option. Calculate the
number of Equity shares to be allotted to the debenture holders exercising the option to
the maximum.
(e) A company sold 20% of the Goods on Cash Basis and the balance on Credit basis.
Debtors are allowed 1.5 month’s credit and their balance as on 31 st March, 2021 is
` 1,50,000. Assume that sale is evenly spread throughout the year.
Purchases during the year ` 9,50,000

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 PAPER – 1 : ACCOUNTING 25

Closing stock is ` 10,000 less than the Opening Stock. Average stock maintained during
the year ` 60,000
Direct Expenses amounted to ` 35,000
Calculate Credit sales, Total sales and Gross profit for the year ended 31 st March, 2021.
(4 Parts x 5 Marks = 20 Marks)
Answer
(a) Effect of each transaction on Balance sheet of Mrs. A is shown below:
Transactions Assets – Liabilities = Equity
` lakh ` lakh ` lakh
Opening 10.00 – 4.00 = 6.00
(1) Dividend earned 10.20 – 4.00 = 6.20
[10.00+0.20] [6.00+0.20]
(2) Settlement of Creditors 9.50 - 3.10 = 6.40
[10.20-0.70] [4.00-0.90] [6.20+0.20]
(3) Salary Outstanding 9.50 – 3.30 = 6.20
[3.10+0.20] [6.40-0.20]
(4) Drawings 9.30 – 3.30 = 6.00
[9.50-0.20] [6.20-0.20]
(b) Calculation of effective capital and maximum amount of managerial remuneration
(` In lakhs)
Paid up equity share capital 90
Paid up Preference share capital 10
Reserve excluding Revaluation reserve (75 – 5) 70
Securities premium 30
Long term loans 20
Deposits repayable after one year 10
230
Less: Accumulated losses not written off (40)
Investments (90)
Effective capital for the purpose of managerial remuneration 100
Since X Ltd. is incurring losses and no special resolution has been passed by the
company for payment of remuneration, managerial remuneration will be calculated on the
basis of effective capital of the company as the effective capital is less than 5 crores.
Therefore, maximum remuneration payable to the Managing Director should be
@ ` 60,00,000 per annum.

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 26 INTERMEDIATE (NEW) EXAMINATION: DECEMBER, 2021

Note: Revaluation reserve, and application money pending allotment are not included
while computing effective capital of Kumar Ltd.
(c) Measurement is the process of determining money value at which an element can be
recognized in the balance sheet or statement of profit and loss. The Framework for
Preparation and Presentation of Financial statements recognizes four alternative
measurement bases for the purpose of determining the value at which an element can be
recognized in the balance sheet or statement of profit and loss.
These bases are: (i) Historical Cost; (ii) Current cost (iii) Realizable (Settlement) Value
and (iv) Present Value.
A brief explanation of each measurement basis is as follows:
1. Historical Cost: Historical cost means acquisition price. According to this, assets
are recorded at an amount of cash or cash equivalent paid or the fair value of the
asset at the time of acquisition. Liabilities are generally recorded at the amount of
proceeds received in exchange for the obligation.
2. Current Cost: Current cost gives an alternative measurement basis. Assets are
carried out at the amount of cash or cash equivalent that would have to be paid if
the same or an equivalent asset was acquired currently. Liabilities are carried at the
undiscounted amount of cash or cash equivalents that would be required to settle
the obligation currently.
3. Realizable (Settlement) Value: As per realizable value, assets are carried at the
amount of cash or cash equivalents that could currently be obtained by selling the
assets in an orderly disposal. Liabilities are carried at their settlement values, i.e.
the undiscounted amount of cash or cash equivalents paid to satisfy the liabilities in
the normal course of business.
4. Present Value: Under present value convention, assets are carried at present value
of future net cash flows generated by the concerned assets in the normal course of
business. Liabilities under this convention are carried at present value of future net
cash flows that are expected to be required to settle the liability in th e normal
course of business.
(d) Calculation of number of equity shares to be allotted
Number of
debentures
Total number of debentures 25,000
Less: Debenture holders not opted for conversion (5,000)
Debenture holders opted for conversion 20,000
Option for conversion 20%
Number of debentures to be converted (20% of 20,000) 4,000

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 PAPER – 1 : ACCOUNTING 27

Redemption value of 4,000 debentures at a premium of 5%

[4,000 x (100+5)] ` 4,20,000
Equity shares of ` 10 each issued on conversion
[` 4,20,000/ ` 20] 21,000 shares
(e) Calculation of Credit Sales, Total Sales and Gross Profit
12 months
Credit Sales for the year ended 31st March, 2021 = Debtors x
1.5 months
12 months
= ` 1,50,000 x
1.5 months
= ` 12,00,000
100%
Total sales for the year ended 2020 -21 = Credit sales x
80%
100%
= ` 12,00,000 x
80%
= ` 15,00,000
Trading Account for the year ended 31 st March, 2021
` `
To Opening stock 65,000 By Sales 15,00,000
To Direct expenses 35,000 By Closing Stock 55,000
To Purchases 9,50,000
To Gross profit 5,05,000
15,55,000 15,55,000
Working Note:
Calculation of opening stock and closing stock
If closing stock is x then opening stock is x+10,000
Average stock ` 60,000
Average stock = Opening stock + Closing stock /2
Thus Opening stock is ` 65,000 and closing stock is ` 55,000.

© The Institute of Chartered Accountants of India

 PAPER – 5: ADVANCED ACCOUNTING
Question No.1 is compulsory.
Candidates are also required to answer any four questions from the remaining five questions.
Working notes should form part of the respective answers.
Wherever necessary, candidates are permitted to make suitable assumptions which should be
disclosed by way of a note.
Question 1
(a) A Company acquired for its internal use a software on 01.03.2020 from U.K. for £ 1,50,000.
The exchange rate on the date was as ` 100 per £. The seller allowed trade discount @
2.5%. The other expenditures were:
(i) Import Duty 10%
(ii) Additional Import Duty 5%
(iii) Entry Tax 2% (Recoverable later from tax department).
(iv) Installation expenses ` 1,50,000.
(v) Professional fees for clearance from customs ` 50,000.
Compute the cost of software to be Capitalized as per relevant AS.
(b) State whether the following items are examples of change in Accounting Policy / Change
in Accounting Estimates / Extraordinary items / Prior period items / Ordinary Activity :
(i) Actual bad debts turning out to be more than provisions.
(ii) Change from Cost model to Revaluation model for measurement of carrying amount
of PPE.
(iii) Government grant receivable as compensation for expenses incurred in previous
accounting period.
(iv) Treating operating lease as finance lease.
(v) Capitalisation of borrowing cost on working capital.
(vi) Legislative changes having long term retrospective application.
(vii) Change in the method of depreciation from straight line to WDV.
(viii) Government grant becoming refundable.
(ix) Applying 10% depreciation instead of 15% on furniture.
(x) Change in useful life of fixed assets.
2 INTERMEDIATE (NEW) EXAMINATION: JANUARY, 2021

(c) The Senior Accountant of AMF Ltd. gives the following data regarding its five segments:
( ` in lakhs)
Particulars P Q R S T Total
( `) ( `) ( `) ( `) ( `) ( `)
Segment Assets 80 30 20 20 10 160
Segment Results (190) 10 10 (10) 30 (150)
Segment Revenue 620 80 60 80 60 900
The Senior Accountant is of the opinion that segment "P" alone should be reported. Is he
justified in his view? Examine his opinion in the light of provision of AS -17 'Segment
Reporting'.
(d) The following particulars are stated in the Balance Sheet of HS Ltd. as on 31 -3-2019 :
Particulars ( ` in lakhs)
Deferred Tax Liability (Cr.) 60.00
Deferred Tax Assets (Dr.) 30.00
The following transactions were reported during the year 2019-20 :
Depreciation as per accounting records 160.00
Depreciation as per income tax records 140.00
Items disallowed for tax purposes in 2018-19 but allowed in 2019-20 20.00
Donation to Private Trust 20.00
Tax rate 30%
There were no additions to fixed assets during the year. You are required to show the
impact of various items on Deferred Tax Assets and Deferred Tax Liability as on 31-3-2020
as per AS-22. (4 Parts X 5 Marks = 20 Marks)
Answer
(a) Calculation of cost of software (intangible asset) acquired for internal use
Purchase cost of the software £ 1,50,000
Less: Trade discount @ 2.5% £ ( 3,750)
£1,46,250
Cost in ` (UK £1,46,250 x ` 100) 146,25,000
Add: Import duty on cost @ 10% (`) 14,62,500
160,87,500
 PAPER – 5 : ADVANCED ACCOUNTING 3

Add: Additional import duty @ 5% (`) 8,04,375

168,91,875
Add: Installation expenses (`) 1,50,000
Add: Professional fee for clearance from customs (`) 50,000
Cost of the software to be capitalized (`) 170,91,875

Note: Since entry tax has been mentioned as a recoverable / refundable tax, it is not
included as part of the cost of the asset.
(b) Classification of given items is as follows:
Sr. No. Particulars Remarks
(i) Actual bad debts turning out to be Change in Accounting Estimates
more than provisions
(ii) Change from Cost model to Change in Accounting Policy
Revaluation model for measurement
of carrying amount of PPE
(iii) Government grant receivable as Extra -ordinary Items
compensation for expenses incurred
in previous accounting period
(iv) Treating operating lease as finance Prior- period Items
lease.
(v) Capitalisation of borrowing cost on Prior-period Items (as interest on
working capital working capital loans is not eligible for
capitalization)
(vi) Legislative changes having long term Ordinary Activity
retrospective application
(vii) Change in the method of depreciation Change in Accounting Estimates
from straight line to WDV
(viii) Government grant becoming Extra -ordinary Items
refundable
(ix) Applying 10% depreciation instead of Prior- period Items
15% on furniture
(x) Change in useful life of fixed assets Change in Accounting Estimates
4 INTERMEDIATE (NEW) EXAMINATION: JANUARY, 2021

(c) As per AS 17 ‘Segment Reporting’, a business segment or geographical segment should

be identified as a reportable segment if:
(i) Its revenue from sales to external customers and from other transactions with other
segments is 10% or more of the total revenue- external and internal of all segments;
or
(ii) Its segment result whether profit or loss is 10% or more of:
(1) The combined result of all segments in profit; or
(2) The combined result of all segments in loss,
whichever is greater in absolute amount; or
(iii) Its segment assets are 10% or more of the total assets of all segments.
Accordingly,
(a) On the basis of revenue from sales criteria, segment P is a reportable segment.
(b) On the basis of the result criteria, segments P & T are reportable segments (since
their results in absolute amount is 10% or more of ` 200 Lakhs).
(c) On the basis of asset criteria, all segments except T are reportable segments.
Since all the segments are covered in at least one of the above criteria, all segments have
to be reported upon in accordance with AS 17. Hence, the opinion of chief accountant that
only segment ‘P’ is reportable is wrong.
(d) Impact of various items in terms of AS 22 deferred tax liability/deferred tax asset
(1) Difference in Depreciation- Generally, written down value method of depreciation is
adopted under income Tax Act which leads to higher depreciation in earlier years of
useful life of the asset in comparison to later years. It is timing difference for which
reversal of Deferred tax liability is required.
Reversal of DTL= ` (160 – 140) Lakhs X 30% = `6 Lakhs
(2) Disallowances, as per IT Act of earlier years- Due to disallowance tax payable for the
earlier years was higher on this account. It is responding timing difference which
required Reversal of Deferred tax assets.
Reversal of Deferred tax assets = `20 Lakhs X 30% = ` 6 Lakhs
(3) Donations to private trusts is not an allowable expenditure under IT Act. It is
permanent difference. Hence, no reversal of tax is required.
 PAPER – 5 : ADVANCED ACCOUNTING 5

Question 2
Galaxy Ltd. and Glory Ltd., are two companies engaged in the same business of chemicals. To
mitigate competition, a new company Glorious Ltd, is to be formed to which the assets and
liabilities of the existing companies, with certain exception, are to be transferred. The
summarized Balance Sheet of Galaxy Ltd. and Glory Ltd. as at 31st March, 2020 are as follows:
Galaxy Ltd. Glory Ltd.
` `
(I) Equity & Liabilities
(1) Shareholders' fund
Share Capital
Equity shares of ` 10 each 8,40,000 4,55,000
Reserves & Surplus .
General Reserve 4,48,000 40,000
Profit & Loss A/c 1,12,000 72,000
(2) Non-current Liabilities
Secured Loan
6% Debentures - 3,30,000
(3) Current Liabilities
Trade Payables 4,20,000 1,83,000
Total 18,20,000 10,80,000
(II) Assets
(1) Non-current assets
Property, Plant & Equipment
Freehold property, at cost 5,88,000 3,36,000
Plant & Machinery, at cost less 1,40,000 84,000
depreciation
Motor vehicles, at cost less 56,000 -
depreciation
(2) Current Assets
Inventories 3,36,000 4,38,000
Trade Receivables 4,62,000 1,18,000
6 INTERMEDIATE (NEW) EXAMINATION: JANUARY, 2021

Cash at Bank 2,38,000 1,04,000

Total 18,20,000 10,80,000
Assets and Liabilities are to be taken at book value, with the following exceptions:
(i) The Debentures of Glory Ltd. are to be discharged, by the issue of 8% Debentures of
Glorious Ltd. at a premium of 10%.
(ii) Plant and Machinery of Galaxy Ltd. are to be valued at ` 2,52,000.
(iii) Goodwill is to be valued at :
Galaxy Ltd. ` 4,48,000
Glory Ltd. ` 1,68,000
(iv) Liquidator of Glory Ltd. is appointed for collection from trade debtors and payment to trade
creditors. He retained the cash balance and collected ` 1,10,000 from debtors and paid
` 1,80,000 to trade creditors. Liquidator is entitled to receive 5% commission for collection
and 2.5% for payments. The balance cash will be taken over by new company.
You are required to :
(1) Compute the number of shares to be issued to the shareholders of Galaxy Ltd. and Glory
Ltd, assuming the nominal value of each share in Glorious Ltd. is ` 10.
(2) Prepare Balance Sheet of Glorious Ltd., as on 1st April, 2020 and also prepare notes to
the accounts as per Schedule III of the Companies Act, 2013. (20 Marks)
Answer
(i) Calculation of Purchase consideration (or basis for issue of shares of Glorious Ltd.
Galaxy Ltd. Glory Ltd.
Purchase Consideration: ` `
Goodwill 4,48,000 1,68,000
Freehold property 5,88,000 3,36,000
Plant and Machinery 2,52,000 84,000
Motor vehicles 56,000 -
Inventory 3,36,000 4,38,000
Trade receivables 4,62,000 -
Cash at Bank 2,38,000 24,000
23,80,000 10,50,000
 PAPER – 5 : ADVANCED ACCOUNTING 7

Less: Liabilities:
6% Debentures (3,00,000 x 110%) - (3,30,000)
Trade payables (4,20,000) ______
Net Assets taken over 19,60,000 7,20,000
To be satisfied by issue of shares of Glorious. 1,96,000 72,000
Ltd. @ ` 10 each
(ii) Balance Sheet of Glorious Ltd. as at 1 st April, 2020
Particulars Note No Amount
`
EQUITY AND LIABILITIES
1 Shareholders' funds
(a) Share capital 1 26,80,000
(b) Reserves and surplus 2 30,000
2 Non-current liabilities
(a) Long-term borrowings 3 3,00,000
3 Current liabilities
(a) Trade payables 4,20,000
Total 34,30,000
ASSETS
1 Non-current assets
(a)
i Property, plant and equipment 4 13,16,000
ii Intangible assets 5 6,16,000
2 Current assets
(a) Inventories 6 7,74,000
(b) Trade receivables 4,62,000
(c) Cash and cash equivalents 7 2,62,000
Total 34,30,000
8 INTERMEDIATE (NEW) EXAMINATION: JANUARY, 2021

Notes to accounts:
` `
1. Share Capital
Equity share capital
2,68,000 shares of ` 10 each 26,80,000
(All the above shares are issued for consideration other
than cash)
2. Reserves and surplus
Securities Premium
(10% premium on debentures of `3,00,000) 30,000
3. Long-term borrowings
Secured
8% 3,000 Debentures of `100 each 3,00,000
4. Property Plant and Equipment
Freehold property
Galaxy Ltd. 5,88,000
Glory Ltd. 3,36,000 9,24,000
Plant and Machinery
Galaxy Ltd. 2,52,000
Glory Ltd. 84,000 3,36,000
Motor vehicles - Galaxy Ltd. 56,000
13,16,000
5 Intangible assets
Goodwill
Galaxy Ltd. 4,48,000
Glory Ltd. 1,68,000 6,16,000
6 Inventories
Galaxy Ltd. 3,36,000
Glory Ltd. 4,38,000 7,74,000
7 Cash and cash equivalents
Galaxy Ltd. 2,38,000
Glory Ltd.(As per working note) 24,000 2,62,000
 PAPER – 5 : ADVANCED ACCOUNTING 9

Working note:
Calculation of cash balance of Glory Limited to be taken over by Glorious Limited
`
Cash balance as at 31 st March,2020 1,04,000
Add: Received from debtors 1,10,000
2,14,000
Less: paid to creditors (1,80,000)
34,000
Less: Commission to liquidators
On Debtors @ 5% 5,500
On Creditors @ 2.5% 4,500
(10,000)
24,000
Note:
1. It is assumed that the nominal value of debentures of Glory Ltd. is ` 100 each.
2. As per the information given in the question, debentures of Glory Ltd. are to be
discharged by the issue of debentures of Glorious Ltd. at premium of 10%. It is
assumed in the above solution that the debentures are issued at premium of ` 10 for
discharge of debentures of ` 3,30,000. Alternative answer considering other
reasonable assumption is also possible.
Question 3
(a) Ananya Enterprises is a partnership firm is which A, B and C are three partners sharing
profits and losses in the ratio of 5 : 3 : 2. The Balance Sheet of the firm as on 31st October,
2019 is as below:
Liabilities ` Assets `
Capital:
A 95,00,000 Land & Buildings 45,00,000
B 75,00,000 Plant & Machinery 65,00,000
C 30,00,000 Furniture & Fixtures 18,00,000
Sundry Creditors 11,00,000 Stock 13,50,000
Sundry Debtors 7,50,000
Cash 7,00,000
Loan A 25,00,000
10 INTERMEDIATE (NEW) EXAMINATION: JANUARY, 2021

Loan B 30,00,000
2,11,00,000 2,11,00,000
On the Balance Sheet date all the three partners have decided to dissolve their partnership
and called you to assist them in winding up the affairs of the firm. They also agreed that
asset realization is distributed among them at the end of each month.
A summary of liquidation transactions is as follows:
November, 2019:
 ` 3,00,000 - collected from debtors, balance is uncollectable
 ` 11,00,000 - received from the sale of entire furniture
 ` 2,00,000 - liquidation expenses paid
 ` 6,00,000 - Cash retained in the business at the end of month
December, 2019:
 ` 2,20,000 - Liquidation expenses paid
 As part payment of his capital, C accepted a machinery for ` 9,00,000 (Book value
` 6,00,000)
 ` 2,00,000 - Cash retained in the business at the end of month.
January, 2020:
 ` 28,00,000 - Received on the sale of remaining plant & machinery
 ` 9,00,000 - Received from the sale of entire stock
 ` 1,50,000 - Liquidation expenses paid
 ` 63,00,000 - Received on sale of Land & Buildings
 No cash is retained in the business.
You are required to prepare a schedule of cash payments amongst the partners by "Highest
Relative Capital Method" as on 31st January, 2020.
(b) Universal Financers Ltd. is a Non-Banking Financial Company.
It provides you the following information regarding its advances of ` 440 lakhs, of which
instalments are overdue on :
 550 accounts for last 3 months (amount overdue ` 105 lakhs)
 75 accounts for 4 months (amount overdue ` 64 lakhs)
 25 accounts for more than 30 months (amount overdue ` 66 lakhs)
 PAPER – 5 : ADVANCED ACCOUNTING 11

 15 accounts already identified as sub-standard for more than 3 years (unsecured)

(amount overdue ` 82 lakhs)
 8 accounts of ` 33 lakhs have been identified as non-recoverable by the
management. (out of 25 accounts overdue for more than 30 months, 17 accounts are
already identified as sub standard for more than 12 months (amount overdue ` 19
lakhs) and others are identified as substandard asset for a period of less than 12
months.
Classify the assets of the company In line with the Non-Banking Financial Company -
Systemically Important Non-Deposit taking Company and Deposit taking Company
(Reserve Bank) Directions, 2016. (15+5=20 Marks)
Answer
(a) Statement showing distribution of cash
Creditors Capitals
Particulars ` ` A (`) B (`) C (`)
Balance Due after loan 11,00,000 70,00,000 45,00,000 30,00,000
Nov. 2019
Balance available 7,00,000
Realization less expenses
and cash retained 6,00,000
Amount available and paid 13,00,000 11,00,000 - 1,20,000 80,000
Balance due — 70,00,000 43,80,000 29,20,000
Dec. 2019
Opening balance 6,00,000
Expenses paid and
balance carried forward 4,20,000
Available for distribution 1,80,000
Cash paid to B and —
Machinery given to C 1,80,000 9,00,000
Balance due 70,00,000 42,00,000 20,20,000
Jan.2020
Opening balance 2,00,000
Amount realized less 98,50,000
expenses
12 INTERMEDIATE (NEW) EXAMINATION: JANUARY, 2021

Amount available and paid 100,50,000

to partners
First, `31,20,000 is paid to
A and B in the ratio of 5:3 19,50,000 11,70,000
Balance (100,50,000 –
31,20,000) ` 69,30,000 is
paid to A,B and C in the 34,65,000 20,79,000 13,86,000
ratio of 5:3:2
Total amount paid 54,15,000 32,49,000 13,86,000
Total loss 15,85,000 9,51,000 6,34,000
Working note:
Calculation of Highest Relative Capital Basis
(1) Scheme of payment for November
Particulars A B C
` ` `
Balance of Capital Accounts 95,00,000 75,00,000 30,00,000
Less: Loans (25,00,000) (30,00,000) —
70,00,000 45,00,000 30,00,000
Profit-sharing ratio 5 3 2
Capital Profit sharing ratio 14,00,000 15,00,000 15,00,000
Capital in profit sharing ratio, taking
A’s capital as base 70,00,000 42,00,000 28,00,000
Excess of C’s Capital and B’s Capital 3,00,000 2,00,000
(A-B)
Profit-sharing ratio 3 2
It means realization up to ` 5,00,000 is distributed among B and C in the ratio of 3:2.
So excess amount of ` 2,00,000 after paying creditors is distributed among B and C
in the ratio of 3:2 i.e. `1,20,000 and 80,000 respectively.
(2) Scheme of payment for December
In the month of December C has received machinery amounting ` 9,00,000 against
his excess capital of ` 1,20,000 (2,00,000 – 80,000). Excess capital of B is `3,00,000
out of which `1,20,000 already paid to him, so balance ` 1,80,000 available in the
month of December will be paid to B.
 PAPER – 5 : ADVANCED ACCOUNTING 13

(3) Scheme of payment for January

Particulars A B C
` ` `
Balance of Capital Accounts at the end 70,00,000 42,00,000 20,20,000
of December
Profit-sharing ratio 5 3 2
Capital Profit sharing ratio 14,00,000 14,00,000 10,10,000
Capital in profit sharing ratio, taking C’s
capital as base 50,50,000 30,30,000 20,20,000

Excess Capital 19,50,000 11,70,000

Since ` 19,50,000 and 11,70,000 is already in the ratio of 5:3, so amount realized up
to ` 31,20,000 is distributed among A and B in the ratio of 5:3.
After that any amount realized is distributed among all the three partners in the ratio
of 5:3:2.
(b) Statement showing classification as per Non-Banking Financial Company -
Systemically Important Non-Deposit taking Company and Deposit taking Company
(Reserve Bank) Directions, 2016
(` in lakhs)
Standard Assets
Accounts (Balancing figure) 90
550 accounts overdue for a period of 3 months 105
75 accounts overdue for a period of 4 months 64 259
Sub-Standard Assets
8 accounts identified as sub-standard asset for a period less than 47
12 months
Doubtful Debts
17 accounts identified as sub-standard for a period more than 12 19
months
15 accounts identified as sub-standard for a period more than 3 82
years
Loss Assets
8 accounts identified by management as loss asset 33
Total overdue 440
14 INTERMEDIATE (NEW) EXAMINATION: JANUARY, 2021

Question 4
On 31st March, 2020 the summarised Balance Sheets of H Ltd. and its subsidiary S Ltd. stood
as follows:
H Ltd. S Ltd.
` `
Shareholders' Fund
Issued and subscribed
Equity shares of ` 10 each 13,40,000 2,40,000
Reserves and Surplus 4,80,000 1,80,000
Profit & Loss Account 2,40,000 60,000
Secured Loans
12% Debentures 1,00,000 -
Current Liabilities
Trade Payables 2,00,000 1,22,000
Bank Overdraft 1,00,000 -
Bills Payable 60,000 14,800
Total 25,20,000 6,16,800
Assets
Non-Current Assets •
(a) Property, Plant & Equipment .
Machinery 7,20,000 2,16,000
Furniture 3,60,000 40,800
(b) Investments
Investments in S Ltd. 3,84,000 -
(19,200 shares at ` 20 each)
Current Assets
Inventories 6,00,000 2,00,000
Trade Receivables 3,00,000 90,000
Bill Receivables 1,00,000 30,000
Cash at Bank 56,000 40,000
Total 25,20,000 6,16,800
 PAPER – 5 : ADVANCED ACCOUNTING 15

The following information is also provided to you:

(a) H Ltd. purchased 19,200 shares of S Ltd. on 1st April, 2019, when the balances of Reserves
& Surplus and Profit & Loss Account of S Ltd. stood at ` 60,000 and ` 36,000 respectively.
(b) Machinery (Book value ` 2,40,000) and Furniture (Book value ` 48,000) of S Ltd were
revalued at ` 3,60,000 and ` 36,000 respectively on 1st April, 2019, for the purpose of
fixing the price of its shares. (Rates of depreciation computed on the basis of useful lives:
Machinery 10%, Furniture 15%).
(c) On 31st March, 2020, Bills payable of ` 12,000 shown in S Ltd.'s Balance Sheet had been
accepted in favour of H Ltd.
You are required to prepare Consolidated Balance Sheet of H Ltd. and its Subsidiary S Ltd. as
at 31st March, 2020. (20 Marks)
Answer
Consolidated Balance Sheet of H Ltd. and its Subsidiary S Ltd. as at 31st March, 2020
Particulars Note (`)
No.
I. Equity and Liabilities
(1) Shareholder's Funds
(a) Share Capital 1 13,40,000
(b) Reserves and Surplus 2 8,27,040
(2) Minority Interest 1,15,560
(3) Non- Current Liabilities
(a) 12% Debentures 1,00,000
(4) Current Liabilities
(a) Trade Payables 3 3,84,800
(b) Short term Borrowings (Bank overdraft) 1,00,000
Total 28,67,400
II. Assets
(1) Non-current assets
(a)
(i) Property, Plant and Equipment 4 14,34,600
(ii) Intangible assets 5 28,800
16 INTERMEDIATE (NEW) EXAMINATION: JANUARY, 2021

(2) Current assets

(a) Inventory (6,00,000+2,00,000) 8,00,000
(b) Trade Receivables 6 5,08,000
(c) Cash and Cash equivalents 96,000
Total 28,67,400
Notes to Accounts
`
1. Share Capital
Equity share capital 13,40,000
1,34,000 shares of ` 10 each fully paid up
2. Reserves and Surplus
Reserves 4,80,000
Add: 4/5th share of S Ltd.’s post-
acquisition reserves (W.N.3) 96,000 5,76,000
Profit and Loss Account 2,40,000
Add: 4/5th share of S Ltd.’s post-
acquisition profits (W.N.4) 11,040 2,51,040
8,27,040
3. Trade Payables
H Ltd. 2,00,000
S Ltd. 1,22,000 3,22,000
Bills Payables
H Ltd. 60,000
S Ltd. 14,800 74,800
3,96,800
Less: Mutual Owings (12,000) 3,84,800
4. Property Plant and Equipment
Machinery
H. Ltd. 7,20,000
S Ltd. 2,40,000
Add: Appreciation 1,20,000
3,60,000
Less: Depreciation (3,60,000 X 10%) (36,000) 3,24,000
 PAPER – 5 : ADVANCED ACCOUNTING 17

Furniture
H. Ltd. 3,60,000
S Ltd. 48,000
Less: Decrease in value (12,000)
36,000
Less: Depreciation (36,000 X 15%) 5,400 30,600 14,34,600
5. Intangible assets
Goodwill [WN 6] 28,800
6. Trade receivables
H Ltd. 3,00,000
S Ltd. 90,000 3,90,000
Bills Receivables
H Ltd. 1,00,000
S Ltd. 30,000 1,30,000
5,20,000
Less: Mutual Owings (12,000) 5,08,000
Working Notes:
1. Pre-acquisition profits and reserves of S Ltd. `
Reserves 60,000
Profit and Loss Account 36,000
96,000
H Ltd.’s = 4/5 (or 80%) × 96,000 76,800
Minority Interest= 1/5 (or 20%) × 96,000 19,200
2. Profit on revaluation of assets of S Ltd.
Profit on Machinery ` (3,60,000 – 2,40,000) 1,20,000
Less: Loss on Furniture `(48,000 –36,000) (12,000)
Net Profit on revaluation 1,08,000
H Ltd.’s share 4/5 × 1,08,000 86,400
Minority Interest 1/5 × 1,08,000 21,600
18 INTERMEDIATE (NEW) EXAMINATION: JANUARY, 2021

3. Post-acquisition reserves of S Ltd.

Total reserves 1,80,000
Less: Pre- acquisition reserves (60,000)
Post-acquisition reserves 1,20,000
H Ltd.’s share 4/5 × 1,20,000 96,000
Minority interest 1/5 × 1,20,000 24,000
4. Post -acquisition profits of S Ltd.
Post-acquisition profits (Profit & loss account balance less 24,000
pre-acquisition profits = ` 60,000 – 36,000)
Add: Excess depreciation charged on furniture @ 15%
on ` 12,000 i.e. (48,000 – 36,000) 1,800
25,800
Less: Under depreciation on machinery @ 10%
on ` 1,20,000 i.e. (3,60,000 – 2,40,000) (12,000)
Adjusted post-acquisition profits 13,800
H Ltd.’s share 4/5 × 13,800 11,040
Minority Interest 1/5 × 13,800 2,760
5. Minority Interest
Paid-up value of (24,000 – 19,200) = 4,800 shares
held by outsiders i.e. 2,40,000 X 20% 48,000
Add: 1/5th share of pre-acquisition profits and reserves 19,200
1/5th share of profit on revaluation 21,600
1/5th share of post-acquisition reserves 24,000
1/5th share of post-acquisition profit 2,760
1,15,560
6. Cost of Control or Goodwill
Price paid by H Ltd. for 19,200 shares (A) 3,84,000
Less: Intrinsic value of the shares
Paid-up value of shares held by H Ltd. i.e. 2,40,000 X 80% 1,92,000
Add: 4/5th share of pre-acquisition profits and reserves 76,800
 PAPER – 5 : ADVANCED ACCOUNTING 19

4/5th share of profit on the revaluation 86,400

Intrinsic value of shares on the date of acquisition (B) 3,55,200
Cost of control or Goodwill (A – B) 28,800

Question 5
(a) A commercial bank has the following capital funds and assets. Segregate the capital funds
into Tier I and Tier II capitals. Find out the risk-adjusted asset and risk weighted assets
ratio:
Capital Funds: (` in lakhs)
Equity Share Capital 29,00
Perpetual Non-cumulative Preference Shares 8,00
Perpetual Cumulative Preference Shares (fully paid up) 5,50
Statutory Reserve 13,50
Capital Reserve (of which ` 13.5 lakhs were due to revaluation of
assets and the balance due to sale of assets) 45
Securities Premium 7,00
Assets:
Cash balance with RBI 3,50
Balances with other banks 4,75
Claims on Banks 10,25
Investments in Bonds issued by other banks 78,00
Investments in venture capital funds 17,00
Other investments 121,00
Loan and Advances:
(i) Loans guaranteed by Government 16,10
(ii) Loans guaranteed by public sector undertakings 6,20
(iii) Leased assets 4
(iv) Advances against term deposits 15,00
(v) Educational loans 12
20 INTERMEDIATE (NEW) EXAMINATION: JANUARY, 2021

Other Assets:
(i) Premises, Furniture & Fixtures and other assets 150,55
(ii) Intangible assets 18
(iii) Deferred tax asset 0.40
Off Balance Sheet Items :
(i) Acceptances, Endorsements & letter of credit 203,00
(ii) Non funded exposure to real estate 19,00
(b) In the winding up of a company, certain Creditors could not receive payments out of the
realization of assets and out of contribution from "A" list contributories. Liquidation started
on 1st April, 2020. The following persons have transferred their holdings before winding
up :
Name Date of Transfer No. of shares Amount due to creditors
transferred on the date of transfer ( ` )
O 4th April, 2019 1,000 42,000
P 2nd Feb, 2019 300 25,000
Q 8th Sep, 2019 200 57,000
R 11th Nov, 2019 1,400 85,000
S 2nd Feb, 2020 800 66,000
T 1st March, 2020 1,400 95,000
The shares were of ` 100 each, ` 70 being called up and paid up on the date of transfers.
'X' was the transferee of shares held by S. 'X' paid ` 30 per share as calls in advance
immediately on becoming a member.
Ignoring Expenses of Liquidation, Remuneration of Liquidator, etc. work out the amount to
be realized from the above contributories. (10+10= 20 Marks)
Answer
(a)
(in lakhs)
(i) Capital Funds - Tier I:
Equity Share Capital 29,00.00
Securities premium 7,00.00
Perpetual non-cumulative pref. shares 8,00.00
Statutory Reserve 13,50.00
 PAPER – 5 : ADVANCED ACCOUNTING 21

Capital Reserve (arising out of sale of assets) 31.50

57,81.50
Less: Intangible assets (18.00)
Deferred tax assets (0.40) (18.40)
Total 57,63.10
Capital Funds - Tier II:
Perpetual cumulative pref. shares 5,50.00
Capital Reserve (arising out of revaluation of assets) 13.50
Less: Discount to the extent of 55% (7.43)* 6.07
Total 556.07
Total Capital Funds 63,19.17
* 7.425 has been rounded off as 7.43.
(ii) Calculation of Risk Adjusted Assets
` in lakhs Weight in % Amount
(` in lakhs)
Funded Risk Assets
Cash Balance with RBI 3,50 0 0
Balances with other Banks 4,75 20 95
Claims on banks 10,25 20 2,05
Investment in bonds issued by other
banks 78,00 20 15,60
Investment in venture capital funds 17,00 150 25,50
Other Investments 121,00 100 121,00
Loans and Advances:
(i) guaranteed by government 16,10 0 0
(ii) guaranteed by public sector
undertakings 6,20 0 0
(iii) Leased assets 4 100 4
(iv) Advances against term deposits 15,00 0 0
(v) Educational Loans 12 100 12
Premises, furniture and fixtures 150,55 100 150,55
315,81
22 INTERMEDIATE (NEW) EXAMINATION: JANUARY, 2021

Off-Balance Sheet Item ` in lakhs Credit ` in lakhs

Conversion
Factor
Acceptances, Endorsements and 203,00 100 203,00
Letters of credit
Non-funded exposure to real estate 19,00 150 28,50
sector
231,50
Capital Funds (Tier I & Tier II)
(iii) Risk Weighted Assets Ratio: ×100
Risk Adjusted Assets + off Balance sheet items

Capital Adequacy Ratio = 63,19.17/315,81+231,50

= (63,19.17/547,31) x 100=11.55%
(b) Statement of Liability as Contributories of Former Members
Creditors Amount to O Q R T Amount
outstanding be paid to 1,000 200 1,400 1,400 to be
creditors Shares Shares Shares Shares paid to
(Increase in the
creditors) creditors
Date ` ` ` ` ` ` `
April 4 42,000 42,000 10,500 2,100 14,700 14,700 42,000
Sep 8 57,000 15,000 - 1,000 7,000 7,000 15,000
Nov 11 85,000 28,000 - - 14,000 14,000 28,000
March 1 95,000 10,000 - - - 10,000 6,300*
Total (A) 10,500 3,100 35,700 45,700
Maximum liability at ` 30 per shares on 30,000 6,000 42,000 42,000
shares held (B)
Amount paid [Lower of (A) and (B)] 10,500 3,100 35,700 42,000 91,300
*` (10,000 – 3,700 = 6,300)
T can be called upon to pay maximum only ` 42,000. So T will pay only ` 6,300 (42,000 –
14,700 – 7,000 – 14,000) out of ` 10,000 above. Hence incremental creditors on 1.03.2020
amounting to ` 3,700 (10,000 – 6,300) will not be receiving any payment.
Note:
1. P will not be liable to pay any amount as the winding up proceedings commenced
after one year from the date of the transfer.
 PAPER – 5 : ADVANCED ACCOUNTING 23

2. S also will not be liable, as the transferee X has paid the balance ` 30 per share as
call in advance.
Question 6
Answer any four of the following:
(a) X Ltd. sold machinery having WDV of ` 300 lakhs to Y Ltd. for ` 400 lakhs and the same
machinery was leased back by Y Ltd. to X Ltd. The lease back arrangement is operating
lease. Give your comments in the following situations:
(i) Sale price of ` 400 lakhs is equal to fair value.
(ii) Fair value is ` 450 lakhs.
(iii) Fair value is ` 350 lakhs and the sale price is ` 250 lakhs.
(iv) Fair value is ` 300 lakhs and sale price is ` 400 lakhs.
(v) Fair value is ` 250 lakhs and sale price is ` 290 lakhs.
(b) List the conditions to be fulfilled as per AS-14 (Revised) for an amalgamation to be in the
nature of merger.
(c) Raja Ltd. has its share capital divided into equity shares of ` 10 each. On 01-08-2019, it
granted 2,500 employees stock options at ` 50 per share, when the market price was
` 140 per share. The options were to be exercised between 1-10-2019 to 31-03-2020. The
employees exercised their options for 2,400 shares only and the remaining options lapsed.
Raja Ltd. closes its books of accounts on 31st March, every year.
You are to required to pass the necessary Journal Entries (including narration) for the year
ended 31-03-2020, with regard to employees' stock options and give working notes also.
(d) Equity Capital is held by Anu, Adi and Arun in the proportion of 30 : 30 : 40 and Preference
Share Capital is held by Sonu, Shri and Sanaya in the proportion of 40 : 10 : 50. If the paid
up Equity Share Capital of the company is ` 60 lakhs and Preference Share Capital is `
30 lakhs, find the proportion and percentage of their voting right in case of resolution of
winding up of the company.
(e) The Directors of Umang Ltd. passed a resolution to buyback 5,00,000 of its fully paid equity
shares of ` 10 each at ` 15 per share. This buyback is in compliance with the provisions
of the Companies Act, 2013.
For this purpose, the company
(i) Sold its investments of ` 30,00,000 for ` 25,00,000.
(ii) Issued 20,000, 12% preference shares of ` 100 each at par, the entire amount being
payable with application.
24 INTERMEDIATE (NEW) EXAMINATION: JANUARY, 2021

(iii) Used ` 15,00,000 of its Securities Premium Account apart from its adequate balance
in General Reserve to fulfill the legal requirements regarding buy-back.
(iv) The company has necessary cash balance for the payment to shareholders.
You are required to pass necessary Journal Entries (including narration) regarding buy-
back of shares in the books of Umang Ltd. (4 Parts x 5 Marks = 20 Marks)
Answer
(a) Following will be the treatment in the given cases:
(i) When sale price of ` 400 lakhs is equal to fair value, X Ltd. should immediately
recognise the profit of `100 lakhs (i.e. 400 – 300) in its books.
(ii) When fair value is ` 450 lakhs then also profit of `100 lakhs should be immediately
recognised by X Ltd.
(iii) When fair value of leased machinery is ` 350 lakhs & sales price is ` 250 lakhs, then
loss of ` 50 lakhs (300 – 250) to be immediately recognised by X Ltd. in its books
provided loss is not compensated by future lease payment.
(iv) When fair value is ` 300 lakhs & sales price is ` 400 lakhs then, profit of ` 100 lakhs
is to be deferred and amortised over the lease period.
(v) When fair value is ` 250 lakhs & sales price is ` 290 lakhs, then the loss of ` 50 lakhs
(300-250) to be immediately recognised by X Ltd. in its books and profit of ` 40 lakhs
(290-250) should be amortised/deferred over lease period.
(b) Amalgamation in the nature of merger is an amalgamation which satisfies all the following
conditions:
(i) All the assets and liabilities of the transferor company become, after amalgamation,
the assets and liabilities of the transferee company.
(ii) Shareholders holding not less than 90% of the face value of the equity shares of the
transferor company (other than the equity shares already held therein, immediately
before the amalgamation, by the transferee company or its subsidiaries or their
nominees) become equity shareholders of the transferee company by virtue of the
amalgamation.
(iii) The consideration for the amalgamation receivable by those equity shareholders of
the transferor company who agree to become equity shareholders of the transferee
company is discharged by the transferee company wholly by the issue of equity
shares in the transferee company, except that cash may be paid in respect of any
fractional shares.
(iv) The business of the transferor company is intended to be carried on, after the
amalgamation, by the transferee company.
 PAPER – 5 : ADVANCED ACCOUNTING 25

(v) No adjustment is intended to be made to the book values of the assets and liabilities
of the transferor company when they are incorporated in the financial statements of
the transferee company except to ensure uniformity of accounting policies.
(c) Journal Entries in the books of Raja Ltd.
` `
1.10.19 Bank A/c Dr. 1,20,000
to Employee compensation expense A/c Dr. 2,16,000
31.3.20 To Equity share capital A/c 24,000
To Securities premium A/c 3,12,000
(Being shares issued to the employees
against the options vested to them in
pursuance of Employee Stock Option Plan)
31.3.20 Profit and Loss A/c Dr. 2,16,000
To Employee compensation expense A/c 2,16,000
(Being transfer of employee compensation
expenses to Profit and Loss Account)
No entry is passed when stock options are granted to employees. Hence, no entry will be
passed on 1st August, 2019;
Working Note:
Market Price = ` 140 per share and stock option price = 50, Hence, the difference
140 – 50 = ` 90 per share is equivalent to employee cost or employee compensation
expense and will be charged to P&L Account as such for the number of options exercised
i.e. 2,400 shares.Hence, Employee compensation expenses will be 2,400 shares X ` 90 =
` 2,16,000
(d) Equity capital is held by Anu, Adi and Arun in the proportion of 30:30:40. Sonu, Shri and
Sanaya hold preference share capital in the proportion of 40:10:50. If the paid up equity
share capital of the company is ` 60 lakhs and Preference share capital is ` 30 Lakh, then
relative weight in the voting right of equity shareholders and preference shareholders will
be 2/3 and 1/3.
The respective voting right of various shareholders will be:
Shareholders Relative weights Voting Power
Anu 2/3X30/100 3/15 20.00%
Adi 2/3X30/100 3/15 20.00%
Arun 2/3 X40/100 4/15 26.67%
Sonu 1/3X40/100 4/30 13.33%
26 INTERMEDIATE (NEW) EXAMINATION: JANUARY, 2021

Shri 1/3X10/100 1/30 3.33%

Sanaya 1/3X50/100 5/30 16.67%
(e) Journal Entries in the books of Umang Ltd.
Dr. Cr.
` `
1. Bank A/c Dr. 25,00,000
Profit and Loss A/c Dr. 5,00,000
To Investment A/c 30,00,000
(Being investment sold for the purpose of buy-back
of Equity Shares)
2. Bank A/c Dr. 20,00,000
To 12% Pref. Share capital A/c 20,00,000
(Being 12% Pref. Shares issued for ` 20,00,000)
3. Equity share capital A/c Dr. 50,00,000
Premium payable on buy-back Dr. 25,00,000
To Equity shares buy-back A/c/ Equity 75,00,000
shareholders A/c
(Being the amount due on buy-back of equity
shares)
4. Equity shares buy-back A/c/ Equity shareholders Dr. 75,00,000
A/c
To Bank A/c 75,00,000
(Being payment made for buy-back of equity
shares)
5. Securities Premium A/c Dr. 15,00,000
General Reserve A/c Dr. 10,00,000
To Premium payable on buy-back 25,00,000
(Being premium payable on buy-back charged
from Securities premium)
6. General Reserve A/c Dr. 30,00,000
To Capital Redemption Reserve A/c 30,00,000
(Being creation of capital redemption reserve to
the extent of the equity shares bought back after
deducting fresh pref. shares issued)
 PAPER – 1 : ADVANCED ACCOUNTING

PART – I MCQs
Case Scenario - I
On 1st April, 2019, Black Limited received a government grant of ` 15,00,000 for
acquisition of a Machine costing ` 50,00,000. The grant was credited to the cost
of the Machine. The life of the Machine is expected to be 10 years and estimated
residual value at the end of 10 years is ` 5,00,000. The company charges
depreciation on straight line basis.
Due to non-fulfillment of certain conditions the company had to refund the entire
grant on 1st April, 2021.
On 31st March, 2023, Black Limited received certain indications of impairment of
the Machine and the recoverable amount was ascertained to be ` 28,00,000 with
revised useful life of 4 years and nil residual value.
On 1st April, 2024, the company exchanged the Machine by paying cash of
` 2,00,000 and new Machine valued at ` 18,00,000.
Based on the information given in above Case Scenario, answer the following
Question No. 1-4:
1. What will be the carrying amount of the Machine as on 31st March, 2021
after charging depreciation for the year?
(A) ` 28,00,000
(B) ` 26,00,000
(C) ` 41,00,000
(D) ` 29,00,000
2. What will be the amount of depreciation to be charged on the Machine for
the year ended 31st March, 2022?
(A) ` 4,87,500
(B) ` 6,37,500

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: JANUARY 2025

(C) ` 4,50,000
(D) ` 5,37,500
3. What will be the impact of test of impairment on Profit & Loss Account of
the company?
(A) Impairment loss of ` 4,00,000 to be debited to Profit & Loss A/c.
(B) Impairment loss of ` 4,25,000 to be debited to Profit & Loss A/c.
(C) Impairment loss of ` 6,25,000 to be debited to Profit & Loss A/c.
(D) Impairment loss of ` 15,25,000 to be debited to Profit & Loss A/c.
4. What will be the amount of Profit or Loss on exchange of Machine as on
1st April, 2024?
(A) Loss of ` 8,00,000
(B) Loss of ` 1,00,000
(C) Profit of ` 1,00,000
(D) Loss of ` 3,00,000
Case Scenario - II
The following particulars are stated in the Balance Sheet of Star Limited as on
31st March, 2023:
Deferred Tax Assets (Dr.) ` 1,20,000
Deferred Tax Liabilities (Cr.) ` 2,10,000
The following transactions were reported during the year 2023-24:
1. Depreciation as per accounting records ` 12,00,000
2. Depreciation as per income tax records ` 18,00,000
3. Interest paid accounted in books on accrual basis ` 4,50,000
but paid on 15-05-2024
4. Employer PF Contribution exp. disallowed for tax purpose ` 82,000
in year 2022-23 but allowed in year 2023-24
5. Unamortized preliminary expenses as per tax records ` 1,00,000

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ADVANCED ACCOUNTING

6. Donation ` 70,000
7. Tax Rate 20%
Based on the information given in above Case Scenario, answer the following
Question No. 5-8
5. What would be the value of the Deferred Tax Assets as on 31-03-2024?
(A) ` 1,52,000
(B) ` 3,30,000
(C) ` 1,23,600
(D) ` 4,50,000
6. What would be the value of the Deferred Tax Liabilities as on 31-03-2024?
(A) ` 1,23,600
(B) ` 3,30,000
(C) ` 1,52,000
(D) ` 1,20,000
7. What would be the value of reversal of Deferred Tax Assets as on
31-03-2024?
(A) ` 20,000
(B) ` 1,04,000
(C) ` 16,400
(D) ` 90,000
8. Which is the permanent difference item as per AS 22?
(A) Employer PF Contribution exp.
(B) Donation
(C) Unamortized preliminary expenses
(D) Depreciation

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: JANUARY 2025

9. AB Contractors undertakes a fixed price contract of ` 350 Lakhs. Information

related to contract is given as under:
Material purchased ` 125 lakhs
Labour charges ` 95 lakhs
Unused material ` 22 lakhs
Estimated future costs to be incurred to complete the contract ` 115 Lakhs.
Payment received as part payment of contract ` 50 Lakhs.
Machinery used for 4 years for the contract. Original cost of the machine is
` 210 Lakhs. Expected life of machinery is 20 years.
What will be the Profit/Loss on the contract?
(A) Loss on contract ` 5 lakhs
(B) Loss on contract ` 49 Lakhs
(C) Profit on contract ` 45 Lakhs
(D) Profit on contract ` 26.5 Lakhs
10. Ace Limited borrowed ` 25 Lakhs from ABN Bank during the financial year
2023-24. Ace Limited used these funds to invest in Equity shares of Kay
Limited.
Kay Limited is implementing a new Project, so with these future prospects,
Ace Limited invested ` 25 Lakhs in Kay Limited.
As on 31st March, 2024, since the said project was not complete, the directors
of Ace Limited capitalised the interest on loan amounting to ` 2 lakhs and
thus added the amount of interest to the cost of Investments.
Market value of these investments on 31st March, 2024 is ` 24 Lakhs.
Identify the correct statement, considering the above facts as per AS 16:
(A) Interest paid is acquisition charge, hence directors of Ace Limited
correctly added the amount of interest in cost of investment.
(B) Since project is qualifying Asset, directors of Ace Limited correctly added
the amount of interest in cost of investments.

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

(C) Ace Limited invested in equity share which is not a qualifying asset,
therefore directors are wrong to add the interest in cost of investments,
rather it should be charged to profit and loss account.
(D) Since project is qualifying asset, directors of Ace Limited should capitalise
the interest amount to market value of investments, rather than cost of
investments.
Case Scenario - III
The following summary cash account has been extracted from the Nextspace
Limited's accounting records:
`
Cash Balance as on 01-04-2023 72,000
Cash Sales 15,56,000
Trade Receivable 7,40,000
Rent from Property held as investment 64,000
Income tax refund 25,000
Loan from Bank 5,00,000
Issue of Shares 2,50,000
Sale of Investment 49,500
31,84,500
Outflow of Cash
Trade Payable 19,60,000
Office and Selling Exp. 1,20,000
Trade Commission 40,500
Underwriting Commission 25,000
Redemption of Preference shares 8,00,000
Brokerage on Sale of Investment 9,200
Interest on long term borrowings 85,600

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: JANUARY 2025

Payment for Overheads 46,000

Purchases of Goodwill 50,000
(31,36,300)
Balance as on 31-03-24 1,20,200
Based on the information given in above Case Scenario, answer the following
Question No. 11-14
11. What would be the value of Cash Flow from Operating Activities?
(A) ` 1,29,500
(B) ` 1,54,500
(C) ` 1,45,300
(D) ` 4,04,000
12. What would be the value of Cash Flow from Investing Activities?
(A) ` 54,300
(B) ` 1,04,300
(C) ` 29,300
(D) ` (500)
13. What would be the value of Cash Flow from Financing Activities?
(A) ` (50,000)
(B) ` (1,35,600)
(C) ` 54,300
(D) ` (1,60,600)
14. Which of the following would be considered as a 'Cash Flow item from an
Investing Activities?
(A) Underwriting Commission
(B) Trade Commission
(C) Purchase of Goodwill
(D) Interest on Long Term Borrowings

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

15. Glow Limited had taken a loan of ` 5,00,000 in June, 2023. The loan is to be
repaid in 10 half yearly equal installments starting from December, 2023.
Determine how the remaining loan will be classified in the Balance Sheet as
on 31st March, 2024 as per Schedule III of the Companies Act, 2013?
(A) ` 3,50,000 is to be shown under the head 'Long term borrowings and
` 1,00,000 is to be shown under the head 'Short term borrowings"
(B) ` 3,50,000 is to be shown under the head 'Long term borrowings and
` 75,000 is to be shown under the head "Short term borrowings" and
` 25,000 is to be shown under the head 'Other Current liabilities."
(C) ` 4,50,000 is to be shown under the head 'Long term borrowings"
(D) ` 3,50,000 is to be shown under the head 'Long term borrowings' and
` 1,00,000 is to be shown under the head 'Other Current liabilities."
Answer Key

MCQ No. Correct Option

1. D
2. A
3. C
4. No Correct Option
5. C
6. B
7. C
8. B
9. A
10. C
11. B
12. A
13. D
14. C
15. A

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: JANUARY 2025

Part II
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions may be made and indicated in
answer by the candidates.
Working Notes should form part of the answer.
Question 1
(a) XYZ Limited has provided you the following information as on 31st
March,2024:

Particulars `
Net profit (After Tax) ` 31,20,000
No. of shares outstanding as on 31-3-2024 of ` 10 each 8,00,000
Average fair value of one equity share during the year ` 25
2023-24
Weighted average on. Of shares under option during the 80,000
year 2023-24
Exercise price for shares under option during the year ` 20
2023-24
12% Debentures of ` 100 each ` 30,00,000
(Each debenture is convertible into 4 equity shares)
Tax rate 30%

The company issued one equity share as bonus for every 5 equity shares
outstanding as on 1st October, 2023. It further issued 2,00,000 equity shares
of ` 10 each as on 1stJanuary, 2024. The Financial Year of the company ends
on 31st March each year.
You are required to calculate Basic and Diluted earnings per share as on
31st March, 2024 (round off your answer to 2 decimal places). (5 Marks)
(b) J Limited availed an equipment on lease from K Limited. The conditions of
the lease terms are as under:

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

(i) Lease starts from 1st April, 2020 for a period of 4 Years and useful life of
the equipment is 6 years. Both the cost and fair value of equipment are
` 12,50,000.
(ii) The equipment reverts back to the lessor on termination of the lease.
(iii) The unguaranteed residual value is estimated at ` 1,20,000 at the end
of the financial year 2023-2024.
(iv) The amount will be paid in 4 equal instalments at the end of each year.
(v) Consider IRR = 8%.
(vi) The present value of ` 1 at the end of 4th year at 8% of interest is ` 0.735.
(vii) The present value of annuity of` 1 due at the end of 4th year at 8% IRR
is ` 3.312
State whether this lease is operating lease or Finance lease (by applying two
deterministic parameters). Also calculate unearned finance Income.
(5 Marks)
(c) What is the difference between Defined Contribution Plan and Defined
Benefit Plan? From the following information calculate the amount of defined
benefit liability /asset:

Particulars ` in
lakhs
Present Value of Defined Benefit Obligation as on 31-3-2024 36.0
Fair Value of Plan asset 38.5
Past service cost not yet recognized 7.5
Present value of available future refund from the plan 6.0
(4 Marks)
Answer
(a) Computation of Basic Earnings per Share

Earnings No. of EPS `

` Shares
Earnings per share for the year 31,20,000 6,50,000 4.80
2023- 2024 (W.N 2)

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: JANUARY 2025

Computation of Dilutive Earnings per Share

Earnings Shares EPS `
`
Net profit for the year 31,20,000
Weighted average number of shares 6,50,000
(W.N. 2) outstanding during year on
31.3.2024 (i)
Number of shares under option 80,000
Number of shares that would have been (64,000)
issued at fair value: (80,000 x
20.00)/25.00
No. of incremental shares issued for no
consideration (ii) 16,000
Diluted earnings per share after options 31,20,000 6,66,000 4.68
(i +ii)
12% Convertible Debentures (W.N. 3) 2,52,000 1,20,000 -
Diluted earnings 33,72,000 7,86,000 4.29

Working notes:
1. Computation of shares issued on bonus

No. of shares outstanding as on 31st March 2024 8,00,000

Less: Shares issued on 1st Jan 2024 (2,00,000)
Outstanding shares as on 31st December 2023 6,00,000
Bonus shares (6,00,000 x 1/(1+5)) 1,00,000
Outstanding shares before bonus issue as on 1st April 5,00,000
2023 (6,00,000x5/6)

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

2. Weighted Average number of Equity shares

Shares Months Weighted

average
Opening balance 5,00,000(W.N.1) 12/12 5,00,000
as on 1.4.2023
Bonus 1,00,000 12/12 1,00,000
Further issue of 2,00,000 3/12 50,000
shares on 1.1.2024
6,50,000

3. 12% Convertible Debentures

Increase in net profit {` 30,00,000 x 0.12 x ( 1 - ` 2,52,000
0.30)}
No. of incremental shares {30,000 x 4} 1,20,000

(b) Computation of annual lease payment:

Particulars `
Cost of equipment 12,50,000.00
Unguaranteed residual value 1,20,000.00
Present value of unguaranteed residual value
(` 1,20,000 x 0.735) 88,200.00
Present value of lease payments
(` 12,50,000 -` 88,200) 11,61,800.00
Present value of annuity for four years is 3.312
Annual lease payment [11,61,800/3.312] 3,50,785.02

Classification of lease:
Parameter 1:
The present value of the lease payment i.e. ` 11,61,800 which equals 92.94%
of the fair market value i.e. ` 12,50,000.

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: JANUARY 2025

The present value of minimum lease payments substantially covers the fair
value of the leased asset.
Parameter 2:
The lease term (i.e. 4 years) covers the major part of the life of asset (i.e. 6
years).
Therefore, it constitutes a finance lease.
Computation of Unearned Finance Income:

Particulars `
Total lease payments (Rs 3,50,785.02 x 4) 14,03,140.08
Add: Unguaranteed residual value 1,20,000.00
Gross investment in the lease 15,23,140.08
Less: Present value of lease payments and residual
value i.e. (12,50,000.00)
Net Investment (` 88,200 + ` 11,61,800)
Unearned finance income 2,73,140.08

(c) Difference between Defined Contribution Plan and Defined Benefit

Plan:

S No. Defined Contribution Plan Defined Benefit Plan

1 Fixed Contributions are paid by Detailed actuarial calculation is
the employer into a separate performed to determine the
fund and will have no charge.
obligation to pay further
contributions.
2 The employer has no obligation The employer ensures that
to pay further contributions if sufficient funds are available to
the fund does not hold meet the promised benefits
sufficient assets to pay all regardless of fund performance
employee benefits and the and the actuarial and investment
employee has to bear the risk fall on the employer.
investment and actuarial risk.

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

Computation of defined benefit liability /Asset:

Particulars ` in lakhs
Present value of the defined benefit obligation as on 36.00
31.3.2024
Less: Past service cost not yet recognized (7.50)
28.50
Less: The fair value of plan assets (38.50)
Defined benefit Asset 10.00

In case where fair value of plan assets is high, it may so happen that the net
amount under defined benefit liability turns negative (giving rise to net
assets).
As per AS 15 the enterprise, in such a situation, should measure the
resulting asset at the lower of:
(i) the amount so determined, i.e. ` 10 lakh; and
(ii) the present value of available future refunds from the plan i.e. ` 6 lakh.
Therefore, defined benefit asset will be recognised at ` 6 lakhs.
Question 2
Sustain Limited is incurring losses due to adverse market conditions. It decided to
reorganize is capital structure. The summarized Balance Sheet of the company as
on 31st March, 2024 is as follows:

Particulars Notes `
Equity and Liabilities
1. Shareholders’ Fund 1 10,00,000
(a) Share Capital 2 (2,50,000)
(b) Reserves and Surplus

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: JANUARY 2025

2. Non-current liabilities
Long term borrowing 3 4,50,000
3. Current liabilities
(a) Trade Payables 1,30,000
(b) Short term borrowings – Bank Overdraft 65,000
(c) Other Current Liabilities (Interest payable on 45,000
Debentures)
(d) Short term provision (Provision for Income Tax) 1,00,000
Total 15,40,000
Assets
1. Non-current assets
(a) Property, Plant & Equipment 4 8,50,000
(b) Intangible assets 5 60,000
(c) Non-current investments 6 2,80,000
2. Current assets
(a) Inventories 1,20,000
(b) Trade receivables 2,30,000
Total 15,40,000

Notes to accounts:
`
1. Share Capital
Equity share capital:
50,000 Equity shares of ` 10 each fully paid up 5,00,000
25,000 Equity shares of ` 10 each, ` 8 paid up 2,00,000
Preference share capital:
30,000 8% Cumulative Preference shares of ` 10 each
(Preference dividend has been in arrears for 3 years) 3,00,000
10,00,000

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

2. Reserves and Surplus

Profit and Loss account (debit balance) (2,50,000)
3. Long-term borrowings
Secured:
10% Debentures of ` 100 each 4,50,000
4,50,000
4. Property, Plant and Equipment
Freehold property 1,00,000
Plant and machinery 7,50,000
8,50,000
5. Intangible assets
Goodwill 60,000
60,000
6. Non-current investments
Non-trade investments at cost 2,80,000
2,80,000

Subsequent to approval by court and all interested parties, the following scheme
of reconstruction were agreed:-
(1) Uncalled capital is to be called up in full and such shares and other fully
paid -up equity shares to be reduced to ` 5 per share.
(2) The preference shareholders will accept a reduction of ` 2.5 per share, in
exchange the rate of dividend is to be increased to 9%.
(3) Preference shareholders will forgo their claim of dividend for one year and
one equity share of ` 5 each is to be issued for the remaining arrears of
dividend.
(4) Mr. X holds 10% debentures for ` 2,50,000. He is also a creditor for ` 50,000.
He agreed to cancel 50% of his total debt, including interest on debentures,
pay ` 20,000 to the company and to receive new 12% debentures for the
balance amount.
(5) The remaining claim of the debenture holders, including outstanding
interest to be reduced to 60%. In consideration of the reduction, the

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: JANUARY 2025

debenture holders are to receive new 9% preference shares at new face

value.
(6) The taxation liability is to be settled at ` 1,20,000.
(7) Market value of Non-current Investments is ` 2,50,000. Investments to be
brought to their market value.
(8) Inventory equal to ` 1,00,000 at book value will be taken over by remaining
creditors in full settlement of their claim.
(9) A bad debt provision of 2% is to be created on trade receivables.
(10) Plant and Machinery is to be written down by 20%.
(11) The company will further issue 12% debentures for such amount which is
sufficient to pay off bank overdraft and other outstanding liabilities and
maintain its cash/bank balance at ` 85,000.
(12) The amount available by the scheme shall be utilized in writing of Goodwill,
debit balance of profit and loss a/c and balance of inventory.
You are required to:
(a) Show the journal entries, necessary to record the above transaction in the
company’s books and
(b) Prepare a note to show revised Share capital structure of the company after
completion of the scheme. (14 Marks)
Answer
(a) Journal Entries in books of Sustain Limited
` `
1. Bank Account Dr. 50,000
To Equity Share Capital Account 50,000
(Balance of ` 2 per share on 25,000
equity shares called up)
2. Equity Share Capital (` 10) Account 7,50,000
To Equity Share Capital (` 5) 3,75,000
Account

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

To Capital Reduction Account 3,75,000

(Reduction of equity shares of ` 10
each to shares of ` 5 each as per
reconstruction scheme)
3. 8 % Cumulative Preference Share Dr. 3,00,000
Capital (` 10) A/c
To 9% Cumulative Preference 2,25,000
Share Capital (` 7.5) A/c
To Capital Reduction A/c 75,000
(Being Preference shares of ` 10 each
reduced by ` 2.5 each per share by
changing the rate of dividend from 8%
to 9% and the balance transferred to
Capital Reduction A/c.)
4. Capital Reduction A/c Dr. 48,000
To Preference share dividend 48,000
payable A/c
(Being arrear of Preference share
dividend payable for one year)
5. Preference share dividend payable A/c Dr. 48,000
To Equity Share Capital (` 5) A/c 48,000
(Being Equity Shares of ` 5 each issued
against arrears of 2 years Preference
Share dividend) (W.N.1)
6 10% Debentures Account Dr. 2,50,000
Interest on Debentures Outstanding Dr. 25,000
A/c
Trade payables Account Dr. 50,000
To Mr. X 3,25,000
(The total amount due to X, transferred
to his account)

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: JANUARY 2025

7 Bank Account Dr. 20,000

To Mr. X 20,000
(The amount paid by X under the
reconstruction scheme)
8 Mr. X 3,45,000
To 12% Debentures Account 1,82,500
To Capital Reduction A/c 1,62,500
(The cancellation of 50% of the total
debt of Mr. X and the issue of 12% new
debentures for the balance amount as
per the reconstruction scheme)
9 10% Debentures A/c Dr. 2,00,000
Interest on Debentures Outstanding 20,000
A/c
To 9% Cumulative Preference 1,32,000
Share capital A/c
To Capital Reduction A/c 88,000
(Being 9% preference share capital
issued to 10% debenture-holders for
60% of their claims. The balance is
transferred to capital reduction
account as per the reconstruction
scheme)
10 Provision for Tax A/c Dr. 1,00,000
Capital Reduction A/c 20,000
To Bank A/c 1,20,000
(Being payment of tax liability in full
settlement)
11 Trade payables A/c (1,30,000-50,000) Dr. 80,000
Capital reduction A/c 20,000

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ADVANCED ACCOUNTING

To Inventory A/c 1,00,000

[Being settlement of creditors by
giving inventory]
12 Capital reduction A/c Dr. 1,84,600
To Investment A/c 30,000
To Provision for bad debt A/c 4,600
(2,30,000 x 2%)
To Plant & Machinery (7,50,000x 1,50,000
20%)
(Investment brought to their market
value, Plant & machinery is written
down by 20% & Provision for Bad
debts of 2% created under the scheme
of reconstruction)
13 Bank A/c Dr. 2,00,000
To 12% debentures A/c 2,00,000
(New 12 % debentures issued to pay
off bank overdraft and maintain cash
balance)
14. Bank Overdraft Dr. 65,000
To Bank A/c 65,000
(Bank overdraft paid)
15. Capital reduction A/c Dr. 4,27,900
To Goodwill A/c 60,000
To Profit and loss A/c 2,50,000
To Inventory 20,000
To Capital reserve A/c 97,900
[Being goodwill and profit and loss
account (Dr. bal.), balance inventory;
and balance of capital reduction
account transferred to capital reserve]

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: JANUARY 2025

Notes to accounts
`
1. Share Capital
Equity share capital
Issued, subscribed and paid up
84,600 equity shares of ` 5 each each 4,23,000
(75,000+9,600)
47,600, 9 % Cumulative Preference Shares of ` 7.50 3,57,000
each
(30,000+17,600)
Total 7,80,000

Working note
1. Calculation of the number of equity shares issued for 2 years arrear
of preference share dividend
3,00,000x 8%x 2 = 48,000
Equity share of ` 5 per share issued= 48,000/5= 9,600 shares
2. Cash & bank Account

To Uncalled capital 50,000 By Bank Overdraft 65,000

To Mr. X 20,000 By Tax 1,20,000
To 12% Debentures A/c 2,00,000 By Balance C/d 85,000
(bal. fig.)
2,70,000 2,70,000

3. The new face value of preference share is 10-2.5= ` 7.5

Calculation of Number of 9% Preference shares issued in consideration
of reduction:
1,32,000/7.5 = 17,600

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Question 3
(a) An Engineering goods company provides ‘after sales warranty’ for 2 years to
its customers. Based on the past experience, the company has been following
policy for making provision for warranties on the Invoice amount on the
remaining balance warranty period:
Invoice less than 1 year : 2.5% provision
Invoice more than 1 year : 4.5% provision
The Company has raised Invoices as under:

Invoice Date `
20th February, 2021 42,000
17 July, 2022
th
25,000
27th January, 2022 47,000
1st March, 2023 1,10,000
24th August, 2023 34,000
20 March, 2024
th
75,000

You are required to:

(i) Calculate the provision to be make for warranty under AS 29 as at
31st March, 2023 and 31st March, 2024:
(ii) Also compute the amount to be debited to Profit and Loss Account for
the year ended 31st March, 2024. (7 Marks)
(b) Given below are the extracts of the Balance Sheet of BGH Limited:

Particulars 31st March, 2024 31st March, 2023

(` ) (` )
Share Capital 5,00,000 4,00,000
Profit & Loss Account 1,10,000 60,000
10% Debentures (issued at the 1,00,000 -
end of the year)
Bank Loan 2,50,000 2,00,000
Trade Payable 60,000 75,000

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: JANUARY 2025

Dividend Payable - 50,000

Interest Payable on Bank Loan 25,000 20,000
(Current Year)
Goodwill 1,20,000 1,50,000
Trade Receivables 65,000 95,000
Inventory 55,000 30,000

You are required to prepare for the year ended 31st March,2024:
Cash Flow from Operating Activities;
Cash Flow from Financing Activities. (7 Marks)
Answer
(a) Provision to be made for warranty under AS 29 ‘Provisions, Contingent
Liabilities and Contingent Assets’
As at 31st March 2023 = ` 25,000 x 2.5% + ` 47,000 x 2.5% + ` 1,10,000
x 4.5%
= ` 625 + ` 1,175+ ` 4,950 = ` 6,750
As at 31st March 2024 = ` 1,10,000x 2.5% + ` 34,000 x 4.5% +` 75,000
x 4.5%
= ` 2,750 + ` 1,530+ ` 3,375 = ` 7,655
Amount debited to Statement of Profit and Loss for year ended
31st March 2024
`
Balance of provision required as on 31.03.2024 7,655
Less: Opening Balance as on 1.4.2023 (6,750)
Amount debited to Statement of Profit and loss 905
Note: No provision will be made on 31 March 2024 in respect of sales
st

amounting ` 42,000,25,000 and 47,000 made on as the warranty period

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(b) Cash Flow from Operating Activities for the Year Ended 31 March 2024

Particulars `

Cash Flow from Operating Activities

Retained earnings (1,10,000-60,000) 50,000
Adjustments for non-cash items
Goodwill Amortisation 30,000
Interest expenses 25,000
1,05,000
Changes in Working Capital
Decrease in Trade Receivables 30,000
Increase in Inventory (25,000)
Decrease in Trade Payables (15,000)
Cash Flow from Operating Activities 95,000

Cash Flow from Financing Activities for the Year Ended 31 March 2024

Increase in Share Capital 1,00,000

Increase in Bank Loan 50,000
Issue of 10% Debentures 1,00,000
Dividend Paid (50,000)
Interest Paid (20,000)
Cash Flow from Financing Activities 1,80,000
Question 4
Following are the summarized Balance Sheet of Light Limited and Bright Limited
as at 31st March,2024:

Particulars Notes Light Limited Bright Limited

(` in Lakhs) (` in Lakhs)
Equity and Liabilities
Shareholders’ Funds
(a) Share Capital 1 50.00 40.00

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: JANUARY 2025

(b) Reserves and Surplus 2 27.00 24.00

Non- Current Liabilities
Long Term Provisions 1.50 -
Current Liabilities
Trade Payables 3.40 2.00
Total 81.90 66.00
Assets
Non-Current Assets
Property, Plant and Equipment 3 68.70 50.25
Current Assets
(a) Inventories 5.75 7.10
(b) Trade Receivables 4.30 5.80
(c) Cash and Cash equivalents 3.15 2.85
Total 81.90 66.00

Notes to Accounts:

Particulars Light Limited Bright Limited

(` in Lakhs) (` in Lakhs)
1. Share Capital
50,000 Equity Shares of ` 100 each 50.00 40.00
2. Reserves and Surplus
Statutory Reserve 2.00 -
General Reserve 18.00 15.00
Securities Premium - 5.00
Profit and Loss 7.00 4.00
27.00 24.00
3. Property, Plant and Equipment
Land and Building 58.00 44.00
Plant and machinery 7.50 4.50
Other Assets 3.20 1.75
68.70 50.25

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Other Information:
(a) A company Rainbow Limited is formed to acquire the Assets and Liability of
both the companies. Assets were acquired at book values except Land and
Building of Light Limited, which is revalued at ` 62 lakhs.
(b) Other Assets of Bright Limited are obsolete and are scrapped and sold for
` 50,000 by Bright Limited itself before acquisition of its assets and liabilities
by Rainbow Limited.
(c) Light Limited and Bright Limited will be issued 80,000 and 64,000 equity
shares of ` 100 each respectively of new company Rainbow Limited in lieu of
purchase consideration due to them.
You are required to Prepare:
(a) Realisation Account and Equity Shareholders Account in the books of Light
Limited and Bright Limited;
(b) Opening Balance Sheet of Rainbow Limited as at 31st March,2024.
(14 Marks)
Answer
Adjustment in bank balance and profit & loss account before
amalgamation
Other assets of Bright limited

` In lakhs
Book value 1.75
Less: Sale proceeds (0.50)
Loss on sale of other assets (debited to Profit & Loss A/c) 1.25
The new balance of Bank = 2.85 +0.5= 3.35 (` In lakhs)
The new balance of Profit & Loss A/c = 4-1.25= 2.75 (` In lakhs)
(a) (i) Realisation Account
Light Ltd. Bright Ltd. Light Ltd. Bright Ltd.
(` In lakhs) (` In lakhs) (` In lakhs) (` In lakhs)
To Sundry Assets, By Long term 1.50 -
transfer : provision
To Land & Building, 58.00 44.00 By Trade payables 3.40 2.00

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: JANUARY 2025

To Plant & machinery 7.50 4.50 By Rainbow Ltd. - 80.00 64.00

purchase
To Other assets 3.20 -
To Inventories 5.75 7.10
To Trade receivable 4.30 5.80
To Cash & Bank 3.15 3.35
Balance
To Equity 3.00 1.25
Shareholders -
profit
84.90 66.00 84.90 66.00

(ii) Shareholders Account

Light ltd. Bright Ltd. Light Ltd. Bright Ltd.
(` In lakhs) (` In lakhs) (` In lakhs) (` In lakhs)
To Shares in 80.00 64.00 By Share Capital A/c - 50.00 40.00
Rainbow Ltd. transfer
By Statutory reserve 2.00 -
By General Reserve 18.00 15.00
By Securities premium - 5.00
By Profit & Loss A/c 7.00 2.75
By Realisation A/c 3.00 1.25
80.00 64.00 80.00 64.00

(b) Balance Sheet of Super Rainbow Ltd.

Particulars Notes (` In lakhs)

Equity and Liabilities
1 Shareholders' funds
A Share capital 1 144.00
B Reserves and Surplus 2 1.00
2 Non-current liabilities
A Long-term provisions 1.50
3 Current liabilities
A Trade Payables 5.40
Total 151.90

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Assets
1 Non-current assets
A Property, Plant and Equipment 3 121.20
B Intangible assets 4 1.25
2 Current assets
Inventories 12.85
Trade receivables 10.10
Cash and cash equivalents 6.50
Total 151.90

(c) Notes to Accounts

(` In lakhs)
1. Share Capital
Equity share capital
Issued, subscribed and paid up
1,44,000 Equity shares of ` 100 each 144.00
(all shares are issued for consideration other than cash)
2. Reserves and Surplus
Statutory Reserves 2.00
Amalgamation Adjustment Reserves (2.00)
Capital Reserves 1.00
1.00
3. Property, Plant and Equipment
Land and Buildings 106.00
Plant and Machinery 12.00
Other Assets 3.20
121.20
4 Intangible assets
Goodwill 1.25

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: JANUARY 2025

Working notes:
1. Calculation of purchase consideration

Light ltd. Bright Ltd.

(` In lakhs) (` In lakhs)
80,000 Equity Shares of ` 100 80
64,000 Equity Shares of ` 100 64

2. Calculation of Net assets taken over

(` In lakhs)
Particulars Light Ltd. Bright Ltd.
Assets taken over:
Land and Buildings 62.00 44.00
Plant and Machinery 7.50 4.50
Other Assets 3.20 -
Inventory 5.75 7.10
Trade Receivable 4.30 5.80
Cash at Bank (2.85 + 0.50) 3.15 3.35
(i) 85.90 64.75
Liabilities taken over:
Long term provisions 1.50 -
Trade payable 3.40 2.00
(ii) 4.90 2.00
Net assets taken over (i) – (ii) 81.00 62.75

3. Calculation of Goodwill/Capital Reserve

(` In lakhs)
Particulars Light Ltd. Bright Ltd.
Net Assets takeover 81.00 62.75
Less: Purchase Consideration (80.00) (64.00)
Goodwill/ (Capital Reserve) (1.00) 1.25

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Question 5
The summarized Balance Sheets of Super Limited and Clear Limited as on
31st March,2024 is as below:

Particulars Note Super Limited Clear Limited

` `
Equity and Liabilities
Shareholders’ Funds
(a) Share Capital 1 95,00,000 50,00,000
(b) Reserves and Surplus 2 25,75,000 12,25,000
Non-Current Liabilities
(a) Long term borrowings 3 5,00,000 2,00,000
Current Liabilities
(a) Short term borrowings 4,50,000 -
(b) Trade Payables 3,65,000 2,45,000
Total 1,33,90,000 66,70,000
Assets
Non-current assets
(a) Property, Plant and 4 77,00,000 54,00,000
Equipment
(b) Non-Current Investment 5 41,50,000 -
Current Assets
(a) Inventories 6,75,000 5,65,000
(b) Trade Receivables 5,85,000 4,90,000
(c) Cash and Cash 2,80,000 2,15,000
equivalents
Total 1,33,90,000 66,70,000

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: JANUARY 2025

Notes to Accounts:

Particulars Super Limited Clear Limited

` `
1. Share Capital
8,00,000 Equity Shares of ` 10 each 80,00,000
fully paid up
5,00,000 Equity Shares of ` 10 each - 50,00,000
fully paid up
15,000 Preference Shares of ` 100
each fully paid up 15,00,000 -
95,00,000 50,00,000
2. Reserves and Surplus
General Reserve 15,50,000 6,50,000
Profit and Loss Account 10,25,000 5,75,000
25,75,000 12,25,000
3. Long term borrowing
10% Debentures 5,00,000 -
9% Debentures - 2,00,000
4. Property, Plant & Equipment
Land & Building 65,00,000 45,50,000
Plant & Machinery 9,50,000 6,75,000
Furniture & Fittings 2,50,000 1,75,000
77,00,000 54,00,000
5. Non–Current Investment
Investment in Clear Limited 41,50,000 -

Additional Information:
(a) Super Limited holds 75% of Equity Shares in Clear Limited since the
incorporation of Clear Limited.
(b) 25% of Trade Receivables of Super Limited is due from Clear Limited.

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(c) During the year Super Limited sold inventory costing ` 2,00,000 to Clear
Limited at a price of 15% above cost. The entire inventory remains unsold
with Clear Limited at the end of financial year.
You are required to prepare Consolidated Balance Sheet of Super Limited and
Clear Limited as on 31st March, 2024. (14 Marks)
Answer
Consolidated Balance Sheet of Super Ltd.
and its subsidiary Clear Ltd. as at 31st March, 2024

Particulars Note No. (`)

I. Equity and Liabilities
(1) Shareholders’ Funds
(a) Share Capital 1 95,00,000
(b) Reserves and Surplus 2 34,63,750
(2) Minority Interest [W.N.4] 15,56,250
(3) Non-current Liabilities
(a) Long term borrowings 3 7,00,000
(4) Current Liabilities
(a) Short-term borrowings 4,50,000
(b) Trade payables 4 4,63,750
Total 1,61,33,750
II. Assets
(1) Non-current assets
(a) Property, Plant & Equipment 5 1,31,00,000
(b) Intangible Assets – Goodwill 4,00,000
(2) Current assets
(a) Inventory 6 12,10,000
(b) Trade Receivables 7 9,28,750
(c) Cash and Cash Equivalents 4,95,000
Total 1,61,33,750

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: JANUARY 2025

Notes to Accounts
` `

1. Share Capital
Equity Share Capital
8,00,000 Equity Shares of ` 10 each fully paid up 80,00,000
Preference Share Capital
15,000 Preference Shares of ` 100 each fully 15,00,000
paid up
Total 95,00,000
2. Reserves and Surplus
General Reserve (WN 5) 20,37,500
Profit & Loss A/c (WN 5) 14,26,250
Total 34,63,750
3. Long term borrowings
10% Debentures 5,00,000
9% Debentures 2,00,000
Total 7,00,000
4 Trade payables
Super Ltd. 3,65,000
Clear Ltd. 2,45,000
Less: Mutual Owing (1,46,250) 4,63,750
5 Property Plant & Equipment
Land & Building
Super Ltd. 65,00,000
Clear Ltd. 45,50,000 1,10,50,000
Plant & Machinery
Super Ltd. 9,50,000
Clear Ltd. 6,75,000 16,25,000

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

Furniture & Fittings

Super Ltd. 2,50,000
Clear Ltd. 1,75,000 4,25,000
6 Inventory
Super Ltd. 6,75,000
Clear Ltd. 5,65,000
Less: Unrealized profit (30,000) 12,10,000
7 Trade Receivables
Super Ltd. 5,85,000
Clear Ltd. 4,90,000
Less: Mutual Owing (1,46,250) 9,28,750

Working Notes:
1. Shareholding Pattern

Super Ltd 5,00,000 Shares

Holding 75% 3,75,000 shares
Minority Interest 25% 1,25,000 shares
2. Analysis of Profit of Clear Ltd.
Capital Revenue Revenue
Profit Reserve Profit
Opening Balance of General Reserve - 6,50,000 -
Opening Balance of P&L - - 5,75,000
Total ` 6,50,000 5,75,000
Share of Minority (25%) 1,62,500 1,43,750
Share of Holding (75%) 4,87,500 4,31,250

3. Computation of Cost of Control (Goodwill / Capital Reserve)

Computation `
Cost of Investment Given 41,50,000
Less: Share of Equity Capital in 50,00,000 × 75% (37,50,000)
Clear Ltd.

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: JANUARY 2025

Less: Pre -acquisition Profit WN 2 -

Goodwill 4,00,000
4. Calculation of Minority Interest

Particulars `
Share in Equity Share Capital 50,00,000 × 25% 12,50,000
Share in Revenue Reserve 6,50,000 × 25% 1,62,500
Share in profit & loss 5,75,000 × 25% 1,43,750
Total 15,56,250

5. General Reserve and Consolidated Profit & Loss A/c

Particulars General Reserve Profit & Loss A/c

Balance from Balance Sheet 15,50,000 10,25,000
Revenue Profit (WN 2) - 4,31,250
Revenue Reserve (WN 2) 4,87,500 -
Unrealized Profit - (30,000)
Total 20,37,500 14,26,250
Question 6
(a) The following information is provided for the year ended 31st March, 2024:
(i) AX Limited holds 70% shares of BX Limited
(ii) BX Limited holds 30% shares of CX Limited
(iii) DX Limited holds 40% shares of in CX Limited
(iv) DX Limited holds 49% shares in EX Limited
You are required to:
(i) Identity the related parties for the reporting entities – AX Limited, CX
Limited and EX Limited.
(ii) If DX Limited would have sold its investment in EX Limited on
1st October, 2023, but goods were continued to be supplied by DX Limited
to EX Limited throughout the year, will this scenario change your answer
with respect to any of the reporting entity mentioned in point (i)?

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

Give reasons for your answer as per AS 18. (4 Marks)

OR
(a) Given below is the Balance Sheet of Sky and Associates as on
31st March,2023:

Liabilities ` Assets `
Capital 1,60,000 Machinery 1,80,000
Profit & Loss Account 93,000 Stock 1,15,000
8% Loan 40,000 Trade Receivables 75,000
Trade Payables 66,000 Deferred Expenditure 9,000
Bank Overdraft 20,000
3,79,000 3,79,000

Additional information:
(1) The firm is planning to shut down its business with immediate effect from
1stApril, 2024.
(2) The sale and purchase of the firm for the year 2023-24 amounts to
` 8,20,000 and ` 6,50,000 respectively.
(3) The value of Closing Stock as on 31-3-2024 was ` 65,000. The net
realizable value is estimated at 120% of cost.
(4) Other expenses for the period amount to ` 25,000.
(5) Deferred expenditure is getting amortized over 5 years starting form
31-3-2022.
(6) The remaining life of Machinery is expected to be 3 years. The realizable
value of Machine is expected at ` 1,65,000, an expense of ` 5,000 is to
be incurred to realize the same.
(7) Out of trade receivables, ` 5,000 is expected to be unrealizable due to
an ongoing dispute.
(8) Bank has charged a penalty of ` 2,500 for crossing the overdraft limit.
(9) The lender has agreed to forgo 50% of interest charge for the year.

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: JANUARY 2025

(10) The firm is expecting a discount of ` 4,000 from creditors at the time of
full and final settlement.
You are required to prepare a Profit & Loss A/c for the year ended
31st March, 2024 to ascertain its Profit/Loss for the period. (4 Marks)
(b) Following information are available in respect of Z Limited as on 31st March,
2024:

4,00,000 Equity share capital of ` 10 each ` 40,00,000

Capital Reserve ` 20,000
Revenue Reserve ` 50,00,000
Securities Premium ` 6,00,000
Profit and Loss Account ` 19,00,000
Investments ` 40,00,000

The company decides to buy back 20% of its Equity capital @` 15 per share
on 1st April, 2024. Buy back is as per provisions of the Companies Act and
company passed the necessary resolutions for it. For this purpose, it sold its
investments of ` 40 lakhs for ` 32 lakhs.
You are required to pass the necessary journal entries. (4 Marks)
(c) Give Journal Entries (with Narrations) in the books of an Independent Branch
of a business entity to rectify or adjust the following:
(i) Commission (income) of ` 7,500 allocated to Branch by Hand office but
still no entry is passed in the books of branch.
(ii) Head office paid ` 12,000 directly to one of branch’s supplier. The
intimation is received by branch on reconciliation of bank statement of
branch with its books.
(iii) A remittance of ` 85,000 is sent by branch to Head office has not been
received by Head office till date.
(iv) Branch paid ` 9,800 as salary to Head office’s employee, but the amount
paid has been wrongly debited to salary account.

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

(v) Branch purchased Furniture for ` 18,000 through cheque, but the
Furniture account was retained in Head office Books. No entry has yet
been passed.
(vi) Branch incurred ` 5,500 of expenses on behalf of other branches of head
office, this transaction was not recorded in the books of branch.
(6 Marks)
Answer
(a) (i)

Reporting entity Related party

AX Limited BX Limited (AX Limited controls BX Limited
directly as holding company
CX Limited (AX Limited has significant
influence in CX Limited indirectly through BX
Limited)
CX Limited AX Limited (AX Limited has significant
influence in CX Limited indirectly through BX
Limited)
BX Limited (BX Limited has significant
influence in CX Limited)
DX Limited (DX Limited holds 40% shares,
means substantial interest of more than or
equal to 20%, hence significant influence exists
in this case)
EX Limited DX Limited (DX Limited holds 49% shares,
means substantial interest of more than or
equal to 20%, hence significant influence exists
in this case)

(ii) No, DX would still be a related party of EX Limited EX Limited will report
DX Limited as a related party as per AS 18. However, the transaction for
the period in which the related party relationship exists will only be
disclosed.

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: JANUARY 2025

OR
Profit and Loss Account of Sky & Associate
for the year ended 31st March, 2024

Particulars ` Particulars `

To Opening Stock 1,15,000 By Sales 8,20,000

To Purchases 6,50,000 By Closing Stock 78,000
To Gross Profit * 1,33,000
8,98,000 8,98,000
By Gross Profit 1,33,000
To Deferred Expense 9,000 By Discount 4,000
To Other Expenses 25,000
To Bad Debts 5,000
To Penalty 2,500
To Depre. (180 – 160) 20,000
To Interest on loan 1,600
To Net Profit 73,900
1,37,000 1,37,000

(b) In the books of Z Limited

Journal Entries

Particulars (`) (`)

1) Bank A/c Dr. 32,00,000
Profit & Loss A/c Dr. 8,00,000
To Investments 40,00,000
(Being investment sold for the
purpose of buy-back of Equity
Shares)

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

2) Equity share capital A/c Dr. 8,00,000

Premium payable on buy-back A/c Dr. 4,00,000
To Equity shares buy-back A/c 12,00,000
(Being the amount due on buy-back
of equity shares)
3) Equity shares buy-back A/c Dr 12,00,000
To Bank A/c 12,00,000
(Being payment made for buy-back of
equity shares)
4) Securities Premium A/c Dr 4,00,000
To Premium payable on buy- 4,00,000
back
(Being premium payable on buy-back
charged from Securities premium)
5) Profit & Loss A/c Dr 8,00,000
To Capital Redemption Reserve 8,00,000
A/c
(Being creation of capital redemption
reserve to the extent of the equity
shares bought back)

(c) In the books of Branch

Journal Entries

Particulars ` `

1) Head office account Dr 7,500

To Commission Income 7,500
(Being commission income recognized)
2) Creditors A/c Dr 12,000
To Head office account 12,000
(Being H.O. paid off a creditor directly)

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: JANUARY 2025

3) No entry in Branch Books

4) Head office account Dr 9,800
To Salary A/c 9,800
(Being amount debited to salary
account by mistake now rectified)
5) Head office account Dr 18,000
To Bank A/c 18,000
(Being furniture purchased by branch
retained by H.O.)
6) Head Office A/c Dr 5,500
To Bank A/c 5,500
(Being expenses incurred on behalf of
other branches, due from H.O.)

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 PAPER – 1 : ADVANCED ACCOUNTING

PART - I
Case Scenario 1
Mr. Vikram took a loan of ` 6,00,000 carrying interest @ 10% p.a. on 1st August,
2023 to purchase raw material. He purchased 4000 units of raw material @ 125
per unit. Replacement cost of raw material as on 31 March, 2024 is 100 per unit.
Labour charges and variable overheads incurred are ` 1,00,000 to produce 1000
units of finished goods.
1000 units of Finished goods are produced with raw material (for every unit of
finished goods produced, 2 units of raw material are required). Net realizable
value of finished good is ` 300 per unit. All the finished goods produced are lying
in stock as on 31 March, 2024.
There is no opening stock of raw material and finished goods.
Mr. Vikram used 1500 units of raw material to construct an Asset (Qualifying
Asset). Labour and other overhead charges incurred on construction of asset are
` 90,000. Mr. Vikram also paid `15,000 to install the asset at Factory premises.
Mr. Vikram used Balance of loan proceeds of ` 1,00,000 to invest in Equity Shares
of P. Ltd. He purchased 9,000 Equity shares (Face Value ` 10 each) for ` 1,00,000
on 25th March, 2024.
The P. Ltd declared and paid dividend @ 20% on 30th March for the year
2023-24.
Based on the information given in above Case Scenario, answer the following
Question No. 1-4:
1. What would be the value of closing stock of Raw Material X and Finished
Goods as on 31st March 2024?
(A) Closing Stock of Raw Material X ` 50,000 and closing stock of Finished
Goods ` 3,50,000
(B) Closing Stock of Raw Material X ` 50,000 and closing stock of Finished
Goods` 3,00,000
 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

(C) Closing Stock of Raw Material X ` 62,500 and closing stock of Finished
Goods ` 3,50,000
(D) Closing Stock of Raw Material X ` 62,500 and closing stock of Finished
Goods ` 3,00,000
2. Cost of Self Constructed Asset as per AS 10 will be ?
(A) ` 2,92,500
(B) ` 2,77,500
(C) ` 3,05,000
(D) ` 2,90,000
3. As per AS 16 what will be the amount of interest to be capitalized and
amount of interest to be charged to Profit & Loss A/c ?
(A) ` 12,500 interest to be capitalised and Profit & Loss A/c. ` 27,500
interest to be charged to Profit & Loss A/c
(B) ` 12,500 interest to be capitalised and ` 20,833 interest to be charged
to Profit & Loss A/c.
(C) ` 19,167 interest to be capitalised and ` 20,833 interest to be charged
to Profit & Loss A/c.
(D) Whole of `40,000 interest to be charged to Profit & Loss A/c.
4. What is the carrying amount of investment as on 31st March, 2024 as per
AS 13 and suggest the treatment of dividend received from P. Ltd.?
(A) Carrying amount of Investment as on 31st March, 2024 is ` 72,000
and the dividend is deducted from the nominal value of investment.
(B) Carrying amount of Investment as on 31st March, 2024 is `90,000 and
the dividend is credited to Profit & Loss A/c.
(C) Carrying amount of Investment as on 31st March, 2024 is` 1,00,000
and the dividend is credited to Profit & Loss A/c.
(D) Carrying amount of Investment as on 31st March, 2024 is 82,000 and
the dividend is deducted from the cost of investment.

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

Case Scenario 2
Kay Ltd. sold goods of ` 22,00,000 to Mr. Ravi Kumar on 1st February, 2024 but
at the request of the buyer, these goods were delivered on 10th April 2024.
Kay Ltd. also sold ` 2,00,000 goods on approval basis on 1st January, 2024 to
Sheetal Enterprises. The period of approvals 3 months after which they were
considered sold. Buyer sent disapproval for 25% of goods and approval for 50%
of goods till 31 March, 2024.
Mr. Ravi Kumar has commenced legal action against Kay Ltd. for supply of faulty
goods to claim damages. The lawyers of Kay Ltd. have advised that it is not remote
yet that resources may be required to settle the claim. Legal cost to be incurred
irrespective of the outcome of the case is ` 45,000. Settlement amount if the claim
is required to be paid ` 5,00,000,
Sheetal Enterprises, a trade receivable of Kay Ltd. suffered a heavy loss due to an
earthquake that occurred on 30th March, 2024. The loss was not covered by any
insurance policy. In April, 2024, Sheetal Enterprises became bankrupt. The
Balance due from Sheetal Enterprises as on 31 March, 2024 is ` 75,000.
Kay Ltd. makes provision for doubtful debts @ 5%.
Based on the information given in above Case Scenario, answer the following
Question No. 5-7
5. What is the amount to be recognized as Revenue as per AS 9 in the books
of Kay Ltd. as on 31 March, 2024?
(A) ` 23,50,000
(B) ` 1,50,000
(C) ` 23,00,000
(D) ` 1,00,000
6. What will be the treatment of legal cost and claim for legal action
commenced by Mr. Ravi Kumar in the Books of Kay Ltd. as on 31 March,
2024 as per AS 29?
(A) Create a Provision for ` 5,45,000
(B) Create a Provision for ` 5,00,000

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

(C) Create a Provision for` 45,000 and make a disclosure of contingent

liability of ` 5,00,000
(D) Make a disclosure of contingent liability of ` 5,45,000
7. What is the treatment of insolvency of Sheetal Enterprises in the Books of
Kay Ltd. as on 31st March, 2024 as per AS 4?
(A) An Adjusting Event, full provision of ` 75,000 should be made in the
Final Accounts for the year ended 31 March, 2024.
(B) An Adjusting Event, provision of ` 3,750 should be made in the Final
Accounts for the year ended 31 March, 2024.
(C) A Non-adjusting event, no provision is required to be made as Sheetal
Enterprises became bankrupt in April, 2024.
(D) A Non-adjusting event, only disclosure is required in the Final
Accounts for the year ended 31st March, 2024.
8. P Ltd. has 60% voting right in Q Ltd. Q Ltd. has 20% voting right in R Ltd.
Also, P Ltd. directly enjoys voting right of 14% in R Ltd. R Ltd. is a Listed
Company and regularly supplies goods to P Ltd. The Management of R Ltd.
has not disclosed its relationship with P Ltd. While preparing Financial
Statements of P Ltd., which entities would you disclose as related parties
with reference to AS-18?
(A) Q Ltd.
(B) R Ltd.
(C) Q Ltd. and R Ltd.
(D) Neither of Q Ltd. or R Ltd.
9. A Machinery was giver on 3 years lease by a dealer of the machinery for
equal annual lease rentals to yield 20% profit margin on cost of the
machinery, which is Rs.3,00,000. Economic life of the machinery is 5 years,
and estimated output from the machinery in 5 years is as follows:
Year I 50,000 units
Year II 60,000 units
Year III 40,000 units
Year IV 65,000 units

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

Year V 85,000 units.

Compute Annual Lease Rent.
(A) ` 30,000
(B) ` 60,000
(C) ` 50,000
(D) ` 36,000
10. A Ltd. had 1,50,000 shares of common stock outstanding on 1 April, 2023.
Additional 50,000 shares were issued on 1 November, 2023 and 32,000
shares were bought back on 1 February, 2024. Calculate the weighted
average number of shares outstanding at the year ended on 31 March, 2024
is:
(A) 1,34,500 shares
(B) 1,65,500 shares
(C) 1,76,167 shares
(D) 1,23,833 shares
Case Scenario 3
Jay Ltd. submits the following data extracted from the Final Accounts as on 31
March, 2023:

Equity Share Capital 50,000

Equity shares of ` 10 each
Profit & Loss (Dr. balance) (50,000)
9% Debentures 2,00,000
Loan from Bank 3,00,000
Advance given to suppliers of goods 45,000
Provision for tax 14,000
Plant & Machinery 4,50,000
Furniture & Fixtures 85,000
Investment in Star Ltd. 1,25,000
10,000 equity shares of 10 each

5
 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

Sundry Debtors 70,000

Cash & Bank Balance 65,500

Additional information given by Jay Ltd.:

On 31 March, 2023 Jay Ltd. decided to reconstruct the company for which
necessary resolution was passed. Accordingly, it was decided that:
(a) 9% Debentures to be settled in full by issuing them 15,000 Equity shares of
10 each.
(b) Equity shareholders will give up 40% of their capital in exchange for
allotment of new 11% Debentures of ` 1,00,000.
(c) Balance of Profit & Loss to be written off.
(d) Equity shares issued for ` 1,00,000.
In addition to above, following information was also presented by Jay Ltd. on 1st
April, 2023:
(a) Interest is received on advances given to suppliers of goods` 3,000.
(b) Taxation liability is settled at ` 14,000.
(c) A debtor of ` 40,000 is insolvent, only 40% of his dues are recovered from
his estate.
(d) Dividend is received on Investment in Star Ltd. ` 1 per equity share invested.
(e) Part of Plant and Machinery is sold at a loss of` 3,000 (book value
` 15,000)
Based on the information given in above Case Scenario, answer the following
Question No. 11-14:
11. The amount of Cash Flow from operating activity is:
(A) ` 2,000
(B) ` 5,000
(C) ` 12,000
(D) ` 15,000

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

12 The amount of Cash Flow from investing Activity is

(A) ` 28,000
(B) ` 25,000
(C) ` 15,000
(D) ` 22,000
13. What is the amount of closing Cash and Cash equivalents as on 1 April,
2023 ?
(A) `1,92,500
(B) ` 92,500
(C) ` 1,27,000
(D) ` 1,98,500
14. The Balance of Equity Share Capital after internal reconstruction is :
(A) ` 6,50,000
(B) ` 4,50,000
(C) ` 5,50,000
(D) ` 7,50,000
15. "Fixed Asset held for sale" will be classified in the Balance Sheet as per
Schedule III of the Companies Act as:
(A) Deferred Tax Assets
(B) Current Asset
(C) Non-Current Asset
(D) Long term Investments
Answers Key

MCQ No. Answers

1. B
2. C
3. A

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

4. D
5. A
6. C
7. A
8. C
9. B
10. B
11. B
12. D
13. A
14. C
15. B

8
 PAPER – 1 : ADVANCED ACCOUNTING
Part II
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions may be made and indicated in
answer by the candidates.
Working Notes should form part of the answer.
Question 1
(a) In the following cases, record Journal Entries for amortization in the books of
Huge Ltd. for the year ended 31st March, 2024 with reference to AS-26:
(i) The company had acquired Patent Rights for ` 340 lakhs on 01.04.2022.
The estimated product life is 4 years. Amortization was decided in the
ratio of estimated future cash flows which are as under:
1st Year ` 140 Lakhs
2nd Year ` 350 Lakhs
3rd Year ` 280 Lakhs
4th Year ` 420 Lakhs
(ii) The company had developed know-how by incurring expenditure of ` 80
lakhs. The know-how has been used by the company since 01.04.2018.
Its useful life is 8 years from the year of commencement of its use. The
company has not amortised the asset until 31.03.2024.
(b) Pendora Ltd. has given the following details in respect of employee benefit
pension plan:

Particulars Amount `
The fair value of plan assets as on 01-04-2023 5,00,000
The benefits paid out on 30-11-2023 63,000
Inward contributions received on 30-09-2023 1,42,000
The fair value of plan assets as on 31-03-2024 7,50,000

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

On 01.04.2023, the company made following estimates, based on its market

studies and prevailing prices :

Particulars %
Interest and dividend income (after tax) payable by fund 10.50
Realised gains on plan assets (after tax) 2.00
Fund administrative costs -2.00
Expected rate of annual return 10.50
(Interest is compounded annually)

You are required to find the expected and actual returns on plan assets as on
31.03.2024 as per AS 15.
(c) Delta Ltd. is working on different projects those are likely to be completed
within 3 years period. It recognizes revenue from these contracts on
Percentage of Completion Method for Financial Statements for the years
ending 2021, 2022 and 2023 for ` 34 Lakhs, ` 50 Lakhs and ` 65 Lakhs
respectively.
However, for Income Tax purpose, it has adopted the Completed Contract
Method under which it has recognized revenue of ` 30 Lakhs, ` 52 Lakhs and
` 67 Lakhs for the years ending 2021, 2022 and 2023 respectively.
Income Tax rate is 30%.
Compute the amount of Deferred Tax Asset / Liability and Total Tax Expenses
for the years ending 31st March 2021, 2022 and 2023. (4+5+5=14 Marks)
Answer
(a) (i) Journal Entry for the year ended on 31st March 2024
` `
in lakhs in lakhs
31.3.24 Amortization A/c (340 × 350/ 1,190) Dr. 100
To Patent Rights A/c 100
P&L A/c Dr. 100
To Amortization A/c 100

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

Working note
Huge Limited amortised ` 340 lakhs during next 4 years on the basis of net
cash flows arising of the product. The amortisation for second year will be
worked out as under:
` 340 x 350 /1,190 (140+350+280+420) = ` 100 lakhs
(ii)

Particulars ` in lakhs ` in lakhs

Prior period item Dr. 50
Amortization A/c Dr. 10
To Know-how A/c 60
[Being amortization of 6 years (out of
which amortization of 5 years charged as
prior period item i.e. 80 x 6 /8 = 60 lakhs)]
Profit and Loss A/c Dr. 60
To Amortization A/c 10
To Prior Period Item 50
(Being amount transferred to Profit and
Loss account)

(b) Computation of Expected and Actual Returns on Plan Assets

`
Return on ` 5,00,000 held for 12 months at 10.50% 52,500
Return on ` 1,42,000 for 6 months at 10.50% 7,455
Loss of interest on benefits paid for 4 months on ` 63,000 (2,205)
for 4 months @ 10.50%
Expected return on plan assets for 2023-2024 57,750
Fair value of plan assets as on 31 March 2024
st
7,50,000
Less: Fair value of plan assets as on 1 April,2023 5,00,000
Contributions received on 30.9.2023 1,42,000 (6,42,000)
1,08,000
Add: Benefits paid on 30 Nov 2023
th
63,000
Actual return on plan assets 1,71,000

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

(c) Calculation of Deferred Tax Asset/Liability in Delta Limited

Year Accounting Taxable Timing Timing Deferred Deferred
Income Income Difference Difference Tax Tax
(balance) Liability
(balance)
2021 34,00,000 30,00,000 4,00,000 4,00,000 1,20,000 1,20,000
2022 50,00,000 52,00,000 (2,00,000) 2,00,000 (60,000) 60,000
2023 65,00,000 67,00,000 (2,00,000) NIL (60,000) NIL
1,49,00,000 1,49,00,000

Calculation of total tax

Year Deferred Tax Current tax expense Total tax

2021 1,20,000 9,00,000 10,20,000
(30,00,000 x 30%)
2022 (60,000) 15,60,000 15,00,000
(52,00,000 x 30%)
2023 (60,000) 20,10,000 19,50,000
(67,00,000 x 30%)
Note: It is assumed that the revenue and the taxable profit is the same.
Question 2
The following is the Trial Balance of Shivam Ltd as on 31st March, 2024 :

Particulars Dr. Particulars Cr.

(` 000) (` 000)
Land at Cost 148 Equity Share of ` 10 each 200
Plant & Machinery at Cost 520 10% Debenture of ` 100 each 135
Debtors 65 General Reserve 90
Closing Stock 58 Profit & Loss Ale 48
Bank 14 Security Premium 27
Adjusted Purchases 226 Sales 473
Factory Expenses 40 Creditors 35
Administration Expenses 22 Provision for Depreciation 116

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

Selling Expenses 20 Suspense A/c 3

Debenture Interest 14
Total 1,127 Total 1,127

Additional Information:
• On 31st March, the Company issued Bonus Shares to the Shareholders on
1 : 2 basis (one equity share issued as bonus for every 2 equity shares held).
No entry relating to this has yet been made.
• The Authorized Share Capital of the Company is 35,000 Equity Shares of
` 10 each.
• The Company, on the advice of an independent valuer, revalued the Land at
` 2,45,000.
• The Directors declared a Dividend of 10% on 5th April, 2024 and also
transferred profit @ 10% to General Reserve.
• Suspense Account of ` 3,000 represents cash received for the Sale of some
Machinery on the 1st day of the financial year 2023-24. Cost of this Machinery
was ` 10,000 and Accumulated Depreciation thereon being ` 8,000.
• Depreciation is to be provided on Plant & Machinery at 10% on Cost.
• Provision for Income tax is required@ 30%.
You are required to prepare Shivam Ltd.'s Profit and Loss A/c for the year ended
31st March, 2024 and Balance Sheet as at that date as per the provisions of the
Companies Act, 2013 after considering the above information. Ignore previous
year figures. (14 Marks)
Answer
Shivam Limited
Balance Sheet as at 31st March 2024

Particulars Note No. ` (in 000)

I. Equity and Liabilities
1. Shareholders' funds
(a) Share capital 1 300.00
(b) Reserves and Surplus 2 232.70

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

2. Non-Current liabilities
(a) Long term borrowings 3 135.00
3. Current liabilities
(a) Trade Payables 35.00
(b) Short-Term Provisions 30.30
Total 733.00
II. Assets
1. Non-current assets
(a) Property, Plant and Equipment and
Intangible assets
(i) Property, Plant and Equipment 4 596.00
2. Current assets
(a) Inventories 58.00
(b) Trade receivables 65.00
(c) Cash and cash equivalents 14.00
Total 733.00

Shivam Limited
Statement of Profit and Loss for the year ended 31st March 2024

Particulars Notes ` (in ‘000)

I. Revenue from operations 473.00
II. Other Income 5 1.00
III. Total Income 474.00
IV. Expenses:
Purchases 226.00
Finance costs 14.00
Depreciation and Amortisation expenses (10% 51.00
of 510 ∗)
Other expenses 6 82.00

∗
520 (Plant and machinery at cost) – 10 (Cost of plant and machinery sold)

14
 SUGGESTED ANSWER
ADVANCED ACCOUNTING

Total Expenses 373.00

V. Profit before Tax (III-IV) 101.00
Tax Expense:
Current tax (30.30)
Profit for the period (after tax) 70.70
Notes to accounts

` (in 000)
1. Share Capital
Equity share capital
Authorised
35,000 shares of ` 10 each 350.00
Issued, subscribed & paid-up
20,000 shares of ` 10 each fully paid up 200.00
Add: 10,000 Bonus Shares issued during
the year 100.00 300.00
2. Reserves and Surplus
Securities Premium Account
Opening Balance 27.00
Less: Utilised for bonus issue 27.00 0.00
Revaluation reserve (2,45,000 – 1,48,000) 97.00
General Reserve 90
Less: Utilized for bonus issue (73) 17.00
Add: Transfer from Profit & loss @ 10% 7.07 24.07
Profit & loss Balance
Opening balance 48.00
Profit for the period 70.70
Appropriations
Transfer to General Reserve @ 10% (7.07) 111.63
232.70

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

3. Long term borrowing

10% Debentures 135.00
4 Property, Plant and Equipment
Land
Opening balance 148.00
Add: Revaluation adjustment 97.00
Closing balance 245.00
Plant and Machinery
Opening balance 520.00
Less: Disposed off (10.00)
510.00
Less: Depreciation (1,16,000-8,000+51,000) (159.00)
Closing balance 351.00
Total 596.00
5 Other Income
Profit on sale of machinery:
Sale value of machinery 3.00
Less: Book value of machinery (10,000-8,000) (2.00) 1.00
6 Other expenses:
Factory expenses 40.00
Selling expenses 20.00
Administrative expenses 22.00 82.00

The final dividend will not be recognized as a liability at the balance sheet
date (even if it is declared after reporting date but before approval of the
financial statements) as per Accounting Standards. Hence, it has not been
recognized in the financial statements for the year ended 31 March 2024.
Such dividends will be disclosed in notes only.

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

Working note:
Bonus Shares Issue:

• Bonus shares are issued in a 1:2 ratio, so for every 2 equity shares, 1 bonus
share is issued.
• Equity Share Capital = ` 2,00,000 / ` 10 = 20,000 shares.
• Bonus Shares = 20,000 / 2 = 10,000 shares × ` 10 = ` 1,00,000.
Alternatively, since, the amount of interest on 10% 1,35,000 Debentures comes to
Rs 13,500 while the Debenture Interest in the trial balance is listed as ` 14,000, the
difference of ` 500 (`13,500 - `14,000) may be treated as an advance payment.

Question 3
(a) On the basis of the following data, prepare Cash Flow Statement as per
AS-3 for the year ended 31st March, 2024:
• Total Sales for the year were ` 380 lakhs out of which Cash Sales
amounted to ` 262 Lakhs.
• Receipts from credit customers during the year, total ` 134 lakhs.
• Total Purchases for the year amounted to ` 220 lakhs, out of which 80%
were credit purchases.
• Opening balance in creditors ` 84 lakhs and Closing balance in creditors
` 92 lakhs.
• Suppliers of other consumables and services were paid ` 19 lakhs in cash.
• Employees of the enterprise were paid ` 20 lakhs in cash.
• Fully-paid preference shares of the face value of ` 32 lakhs were
redeemed.
• Issued equity shares of the face value of ` 20 lakhs at a premium of 20%.
• Debenture of ` 20 lakhs at premium of 10% were redeemed by issuing
equity shares in lieu of their claims.
• ` 26 lakhs were paid by way of Income Tax.
• A new machinery costing ` 20 lakhs was purchased in a part exchange
of an old machinery. The book value of the old machinery was ` 13 lakhs,

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

but the vendor agreed to take over the old machinery at a higher value
of ` 15 lakhs. The balance due to vendor was paid in cash.
• Dividend ` 15 lakhs (including dividend distribution tax) ∗ of ` 2.7 lakhs
was also paid on 30th March, 2024.
• Debenture interest ` 3 lakhs was paid.
• During the year ` 8 lakhs rent was received from property held as
investment.
• ` 0.50 lakh interest was earned on the advance payments to suppliers of
Goods.
• Cash and cash equivalents on 1st April 2023, ` 2 lakhs. (7 Marks)
(b) Aerodots Ltd. has the following capital structure as on 31.03.2024 :

Particulars Amount
(` in thousands)
Equity Share Capital (shares of ` 10 each) 600
Reserves:
General Reserve 540
Securities Premium 200
Profit & Loss 100
Revaluation Reserve 30
Investment Allowance Reserve (Statutory Reserve) 75
Infrastructure Development Reserve 25
Loan Funds 2000

On 1st April, 2024 the company wants to buy back 14,000 equity shares of
` 10 each at ` 30 per Equity share.
You are required to calculate maximum permissible number of equity shares
that can be bought back.
Buy Back of shares is duly authorized by its articles and necessary resolution
has been passed by the company. (7 + 7 = 14 Marks)

∗
PS: As per IT Act, 1961 DDT is no more applicable

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

Answer
(a) Cash flow statement
for the year ended 31st March 2024

(` in lakhs) (` in lakhs)
Cash flow from operating activities
Cash sales 262.00
Cash collected from credit customers 134.00
Interest received on advance payment to 0.50
suppliers
Less: Cash purchases (44.00)
Less: Payment to Creditors (84 + 176 – 92) (168.00)
Less: Cash paid to suppliers for consumables & (19.00)
services
Less: Cash paid to employee (20.00)
Cash from operations 145.50
Less: Income tax paid (26.00)
Net cash generated from operating 119.50
activities
Cash flow from investing activities
Payment for purchase of Machine (20-15) (5.00)
Proceeds from rent received 8.00
Net cash used in investing activities 3.00
Cash flow from financing activities
Redemption of Preference shares (32.00)
Proceeds from issue of Equity shares 24.00
Debenture interest paid (3.00)
Dividend Paid (15.00)
Net cash used in financing activities (26.00)
Net increase in cash and cash equivalent 96.50
Add: Cash and cash equivalents as on 2.00
1.04.2023
Cash and cash equivalents as on 31.3.2024 98.50

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

(b) Statement determining the maximum number of shares to be bought back

(in thousands)

Particulars Number of
shares
Shares Outstanding Test (W.N.1) 15
Resources Test (W.N.2) 12
Debt Equity Ratio Test (W.N.3) 11
Maximum number of shares that can be bought back 11
[least of the above]

Thus, the lowest being 11,000 shares, the company cannot buy back 14,000
shares.
Working Notes:
1. Shares Outstanding Test

Particulars (Shares in
thousands)
Number of shares outstanding 60
25% of the shares outstanding 15

2. Resources Test

Particulars ` (in thousands)

Paid up capital 600
Free reserves (540 + 200 +100) 840
Shareholders’ funds 1,440
25% of Shareholders fund 360
Buy-back price per share ` 30
Number of shares that can be bought back 12,000 shares

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

3. Debt Equity Ratio Test: Loans cannot be in excess of twice the

Equity Funds post Buy-Back

Particulars ` in thousands
(a) Loan funds 2,000
(b) Minimum equity to be maintained after 1,000
buy-back in the ratio of 2:1 (`) (a/2)
(c) Present equity shareholders fund (`) 1,440
(d) Future equity shareholders fund (`) (see 1,330
W.N.4) (1,440-110)
(e) Maximum permitted buy-back of Equity (`) 330
[(d) – (b)]
(f) Maximum number of shares that can be 11,000 shares
bought back @ ` 30 per share

4. Amount transferred to CRR and maximum equity to be bought back

will be calculated by simultaneous equation method.
Suppose amount transferred to CRR account is ‘x’ and maximum
permitted buy-back of equity is ‘y’ Then
Equation 1: (Present Equity- Transfer to CRR)- Minimum Equity to be
maintained = Maximum Permitted Buy-Back
= (1,440 – x) – 1,000 = y

= 440 – x = y (1)
Equation 2: Maximum Permitted Buy-Back X Nominal Value Per
Share/Offer Price Per Share
y/30 x 10 = x
or
3x = y (2)
by solving the above two equations we get
x = ` 110 thousands
y = ` 330 thousands

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

Alternatively, Maximum number of shares from debt equity ratio test

may be worked out as follows:
Buy-back price + Face value of equity shares ` 30 + ` 10 = ` 40
Excess of equity fund over the minimum equity to be maintained
1440-1000 = 440 thousands
Number of Shares that can be bought back = 440/40 thousands
= 11 thousands.
Question 4
The following are the summarized Balance Sheets of Well Ltd. and Nice Ltd. as at
31st March, 2024 :

Particulars Notes Nice Ltd. Well Ltd.

(` in '000) (` in '000)
Equity and Liabilities
1. Shareholder's funds
a. Share capital 1 41,000 14,300
b. Reserves and Surplus 2 19,500 (7,350)
2. Non-current liabilities
a. Long-term borrowings 3 20,500 5,425
3. Current Liabilities
a. Trade Payables 15,740 4,850
b. Short-term Borrowings - 1,975
Total 96,740 19,200
Assets
1. Non-current Assets
a. Property, plant, and equipment 4 62,550 16,380
b. Non-current Investments 22,500 -
2. Current assets
a. Inventories 300 870
b. Trade Receivables 6,590 1,950

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

c. Cash and Cash equivalents 4,800 -

Total 96,740 19,200

Notes to Accounts

Nice Ltd. Well Ltd.

(` in '000) (` in '000)

1. Share Capital
Equity Share Capital
Issued, subscribed & paid up capital
Equity Shares of ` 100 each 31,500 12,500
Preference Share Capital
Issued, subscribed & paid up capital
9% Preference Shares of ` 100 each 9,500
10% Preference Shares of ` 100 each 1,800
Total 41,000 14,300
2. Reserves and Surplus
Balance of Profit and Loss A/c 19,500 (7,350)
3. Long-term borrowings
9% Debentures of ` 100 each 11,200
10% Debentures of ` 100 each 900
Loan from Banks 9,300 4,525
20,500 5,425

Details of Trade receivables and Trade payables are as under :

Nice Ltd. Well Ltd.

(` in '000) (` in '000)
1. Trade receivables
Debtors 6,200 1,800

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

Bills Receivables 390 150

6,590 1,950
2. Trade payables
Creditors 14,750 4,400
Bills Payables 990 450
15,740 4,850

On 31.03.2024, Nice Ltd. absorbs the business of Well Ltd. on the following terms:
• For every five equity shares held by the equity shareholders of Well Ltd., they
receive three equity shares of Nice Ltd. issued at a premium of ` 20 per share.
• The 10% debenture-holders of Well Ltd. were to be allotted such 9%
debentures in Nice Ltd. as would bring the same amount of interest.
• 10% Preference Shareholders of Well Ltd. are to be paid at 10% discount by
issue of 9% Preference Shares at par in Nice Ltd.
• Banks agreed to waive off the loan of ` 270 thousand of Well Ltd.
• Expenses of Liquidation of Well Ltd. are to be reimbursed by Nice Ltd. ` 55
thousand.
• Inventory of Well Ltd. is taken over at 10% more than their book value by
Nice Ltd.
• Debtors of Nice Ltd. include ` 215 thousand receivables from Well Ltd.
• Property, Plant, and Equipment of Well Ltd. are revalued at 20% abo their
book value.
• The remaining Assets and Liabilities of Well Ltd. are taken over at book value
by Nice Ltd.
You are required to :
1. Record Journal Entries in the books of Nice Ltd.
2. Prepare Balance Sheet of Nice Ltd. after absorption as at 31 March, 2024.
(14 Marks)

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

Answer
Journal Entries in the Books of Nice Ltd.

Dr. Cr.
` in ‘000 ` in ‘000
Business Purchase Account Dr. 10,620
To Liquidator of Well Ltd. 10,620
(Consideration payable for the business taken over
from Well Ltd.)
Property, Plant and Equipment (120% of ` 16,380) Dr. 19,656
Inventory (110% of ` 870) Dr. 957
Trade receivables Dr. 1,950
Goodwill A/c (Balancing figure) Dr. 137
To Trade payables 4,850
To Debenture Holders Account 1,000
To Loan from bank (4,525-270) 4,255
To Short term borrowings 1,975
To Business Purchase Account 10,620
(Incorporation of various assets and liabilities taken
over from Well Ltd. at agreed values and difference of
net assets and purchase consideration debited to
Goodwill A/c))
Liquidator of Well Ltd. Dr. 10,620
To Equity Share Capital (75,000x 100) 7,500
To 9% Preference Share Capital 1,620
To Securities premium (7,5000x 20) 1,500
(Discharge of consideration for Well Ltd.’s business)
Debenture holders A/c Dr. 1,000
To 9% Debentures A/c 1,000
(Being 9% debentures issued to 10% debenture
holders)

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

Sundry Creditors of Well Ltd. Dr. 215

To Sundry Debtors of Nice Ltd. 215
(Cancellation of mutual owing)
Goodwill Dr. 55
To Bank 55
(Being liquidation expenses reimbursed to Well Ltd.)

Working Note:
The purchase consideration will be:

` Form
Preference shareholders: 16,200 × 100 16,20,000 9% Pref. shares
Equity shareholders: 1,25,000 × 3/5 × 120 90,00,000 Equity shares
1,06,20,000
10 % Preference shares 18,00,000
Less: 10% discount 1,80,000
16,20,000
Debenture calculation

Interest
10% Debenture 9,00,000 90,000
Therefore 9% debentures 90,000/9% = 10,00,000

Balance Sheet of Nice Ltd. (After absorption) as at 31st March 2024

Particulars Notes ` in ‘000

I Equity and Liabilities
1 Shareholders' funds
(a) Share capital 1 50,120
(b) Reserves and Surplus 2 21,000
2 Non-current liabilities
(a) Long-term borrowings 3 25,755
3 Current liabilities
(a) Trade payables 4 20,375

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

(b) Short term borrowing 1,975

Total 1,19,225
II Assets
1 Non-current assets
(a) Property, Plant and Equipment and 5
Intangibles
(i) Property, plant and equipment 82,206
(ii) Intangible assets 192
(b) Non-current investments 22,500
2 Current assets
(a) Inventories 6 1,257
(b) Trade receivables 7 8,325
(c) Cash and Cash equivalents 8 4,745
Total 1,19,225
Notes to accounts

` in ‘000
1 Share Capital
Equity share capital
Issued, subscribed and paid up
3,90,000 Equity shares of ` 100 each
(out of above 75,000 shares are issued for 39,000
consideration other than cash)
Preference Shares
Issued, subscribed and paid up
1,11,200 9% Preference Shares of ` 100 each (9,500
+ 1,620)
11,120
(out of above 16,200 shares are issued for
consideration other than cash)
50,120

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

2 Reserves and Surplus

Securities premium 1,500
Reserves and surplus 19,500 21,000
3 Long-term borrowings
9 % Debentures (11,200+1,000) 12,200
Loan from bank (9,300+4255) 13,555 25,755

4 Trade Payable
Nice Limited 15,740
Well Limited 4,850
20,590
Less: Inter Company holdings (215) 20,375
5 Property, Plant and Equipment and Intangibles
Property, Plant and Equipment 62,550
Acquired during the year 19,656 82,206
Intangibles
Goodwill (137+55) 192

6 Inventories 300
Acquired during the year 957 1,257
7 Trade receivables 6,590
Acquired during the year (1,585+150) 1,735 8,325
8 Cash and Cash Equivalents
Nice Limited 4,800
Less: Expenses on liquidation (55) 4,745

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

Question 5
On 1st February, 2024, Best Ltd. acquired 80% Equity shares of Cool Ltd. for
` 14,80,000.
On 31st March, 2024, Best Ltd. also acquired 25% Equity shares of Good Ltd. for
` 3,80,000.
The following are the balances extracted from the books of Best Ltd., Cool Ltd.,
and Good Ltd. as on 31st March, 2024 :

Particulars Best Ltd. Cool Ltd. Good Ltd.

Amount in ` Amount in ` Amount in `
Equity Shares of ` 100 each fully 30,00,000 20,00,000 10,00,000
paid
Securities Premium - 2,20,000 -
9% Debentures 6,30,000 - 2,40,000
General Reserve 2,69,000 84,000 1,20,000
Profit & Loss Account (Credit 3,26,000 2,70,000 50,000
Balance)
Investments 17,50,000 6,10,000 -
Property, Plant, and Equipment 18,90,000 18,14,000 12,10,000
Current Assets 9,65,000 5,60,000 2,25,000
Trade Payable (Including Bills 3,80,000 4,10,000 25,000
Payable)
Sales and other income 56,00,000 38,00,000 27,00,000
Raw material consumed 36,50,000 31,20,000 22,30,000
Wages and Salaries 5,07,000 4,01,000 2,69,000
Production expenses 1,35,000 1,06,000 98,000

Additional information :
• The Profit and Loss account of Cool Ltd. showed a credit balance of ` 30,000
on 1st April, 2023.
• The General Reserve balance is brought forward from the previous year.
• On 31st March, 2024, all the bills payable in Cool Ltd.'s balance sheet were

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

acceptances in favour of Best Ltd. However, on the date, Best Ltd. held only
` 3,00,000 of these acceptances in hand, the rest having been endorsed in
favour of its creditor.
• Best Ltd. purchased goods costing ` 5,00,000 from Cool Ltd. on 1st June, 2023
at a price of ` 6,50,000. The entire goods remain unsold with Best Ltd. at the
end of the financial year.
• Best Ltd. is preparing Consolidated Financial Statements for the year ending
31.03.2024.
You are required to calculate :
(1) Trade Payable (Consolidated)
(2) Current Assets (Consolidated)
(3) Minority Interest
(4) Goodwill/Capital Reserve on the acquisition of Cool Ltd.'s shares
(5) Goodwill/Capital Reserve on the acquisition of Good Ltd.'s shares
(6) Profit & Loss Account (Consolidated)
(7) General Reserve (Consolidated)
(8) Revenue from Operations (Consolidated)
(9) Cost of material purchased/consumed (Consolidated) (14 Marks)
Answer
1. Trade payable (Consolidated)

Best limited 3,80,000

Add: Cool Ltd 4,10,000
Less: Elimination (3,00,000)
Total 4,90,000

2. Current assets (Consolidated)

Best limited 9,65,000

Add: Cool Ltd 5,60,000
Less: Elimination of inter company owing (3,00,000)

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

Less: Unrealized stock profit (1,50,000) (4,50,000)

Total 10,75,000

3. Minority interest Cool Ltd

Share Capital (20,00,000 x 20%) 4,00,000

Add: Securities premium (2,20,000 x 20%) 44,000
Add: General Reserve (84,000 x 20%) 16,800
Add: Profit and loss balance 2,70,000
Less: Adjustment of unrealised profit stock (1,50,000)
Balance 1,20,000
20% of above balance 24,000
Total 4,84,800

4. Goodwill/Capital Reserve on Acquisition of Cool Ltd.:

Purchase Consideration 14,80,000

Less: Share Capital (20,00,000 x 80%) 16,00,000
Less: Securities premium (2,20,000 x 80%) 1,76,000
Less: General Reserve (84,000 x 80%) 67,200
Less: Profit and loss balance opening (30,000 x 80%) 24,000
Less: Pre acquisition profits
(2,70,000-30,000) x 10/12 x 80% 1,60,000
Less: Unrealised profit stock (1,50,000 x 80%) 1,20,000 40,000
Capital Reserves 4,27,200

5. Goodwill/Capital Reserve on Acquisition of Good Ltd.

Purchase Consideration 3,80,000

Less: Share Capital (10,00,000 x 25%) 2,50,000
Less: General Reserve (1,20,000 x 25%) 30,000
Less: Profit and loss balance (50,000 x 25%) 12,500
Goodwill 87,500

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

6. Profit and Loss Account (Consolidated)

Best limited 3,26,000

Add: Post acquisition profit of Cool Ltd
{(2,70,000-30,000) x 2/12}80% 32,000
Total 3,58000

7. General Reserve (Consolidated)

Best limited 2,69,000
With reference to para no 15 of AS 21
If an enterprise makes two or more investments in another enterprise at
different dates and eventually obtains control of the other enterprise, the
consolidated financial statements are presented only from the date on which
holding-subsidiary relationship comes in existence. If two or more investments
are made over a period of time, the equity of the subsidiary at the date of
investment, for the purposes of paragraph 13 above, is generally determined
on a step-by-step basis; however, if small investments are made over a period
of time and then an investment is made that results in control, the date of the
latest investment, as a practicable measure, may be considered as the date of
investment.
And para no 22 of AS 21 The results of operations of a subsidiary are
included in the consolidated financial statements as from the date on which
parent-subsidiary relationship came in existence. The results of operations
of a subsidiary with which parent- subsidiary relationship ceases to exist
are included in the consolidated statement of profit and loss until the date
of cessation of the relationship. The difference between the proceeds from
the disposal of investment in a subsidiary and the carrying amount of its
assets less liabilities as of the date of disposal is recognised in the
consolidated statement of profit and loss as the profit or loss on the
disposal of the investment in the subsidiary. In order to ensure the
comparability of the financial statements from one accounting period to
the next, supplementary information is often provided about the effect of
the acquisition and disposal of subsidiaries on the financial position at the
reporting date and the results for the reporting period and on the
corresponding amounts for the preceding period.

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

8. Revenue (Consolidated) as per para no 15 and 22 of AS 21

Revenue of Best Ltd 56,00,000

Add: Revenue of Cool Ltd. (38,00,000 × 2/ 12) 6,33,333
62,33,333
9. Cost of materials purchased/consumed (Consolidated) as per para no
15 and 22 of AS 21

Raw material of Best Ltd 36,50,000

Add: Raw material of Cool Ltd (31,20,000x 2/12) 5,20,000
41,70,000

Question 6
(a) On 01.04.2023, Mr. Day has 25,000 shares of Squares Ltd. at a book value of
` 25 per share (nominal value of ` 10 each). Further information is as under:
(i) On 31st July 2023, the Directors of Squares Ltd. issued one equity bonus
share for every five shares held by the shareholders.
(ii) On 30th September 2023, the Directors of Squares Ltd. announced a right
issue which entitled the ·holders to subscribe three shares for every two
shares at ` 20 per share. Shareholders can transfer their rights in full or
in part.
Mr. Day sold 1/4th of entitlement to Dhwani for a consideration of ` 5 per
share and subscribed the rest on 5th October, 2023.
You are required to prepare Investment A/c in the books of Mr. Day for the
year ending 31.03.2024.
OR
(a) "In determining the cost of inventories, it is appropriate to exclude certain
costs and recognise them as expenses in the period in which they are
incurred."
Provide examples of such costs as per AS 2 (Revised) 'Valuation of Inventories.

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

(b) The following scheme of reconstruction has been approved for Equity
shareholders and Debenture holders of TP Ltd.
(i) The Equity shareholders to receive in lieu of their present holding of
1,50,000 shares of ` 10 each, the following :
(1) For ` 50,000, equivalent cash
(2) For ` 9,00,000, 10% debentures issued at premium of 20% (Face
value of debenture is ` I00 each)
(3) For balance ` 5,50,000, Equity shareholders agreed to accept 50,000
equity shares of ` 10 each in full settlement.
(ii) 8% Debenture ` 5,00,000.

Debenture holders agreed to accept Freehold property (Book value

` 3,50,000) at a valuation of ` 4,45,000 in full settlement of their claim.
Pass necessary Journal Entries in the Books of TP Ltd. for the above
reconstruction. Narration for Journal entries is not required to be given.
(c) Following is the information of Kullu Branch of M/s Best Enterprises of Shimla
for the year ending 31st March 2023 :
(1) Goods are invoiced to the branch at cost plus 20%
(2) Branch sold goods at invoice price plus 25%.
(3) Other Information is as follows:
(i) Stock (at cost price) as on 1st April, 2022 is ` 2,25,000
(ii) Goods sent by Head office to branch during the year (at cost price)
are ` 14,85,000
(iii) Goods returned by Branch to Head office during the year (at Invoice
price) are ` 75,000
(iv) Sales by the branch during the year ` 19,50,000

(v) Expenses incurred at Branch ` 56,000.

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

You are required to ascertain the following:

(a) Profit earned by the Branch by Preparing Trading and profit and loss
account for the year ended 31st March 2023
(b) Also find the stock reserve on Closing stock (4 + 6 + 6 = 14 Marks)
Answer
(a) In the books of Mr. Day
Investment Account
(Equity shares in Square Ltd.)
Date Particulars No. of Amount Date Particulars No. of Amount
shares (`) shares (`)
1.4.23 To Balance 25,000 6,25,000 31.3.24 By Balance 63,750 13,00,000
b/d c/d (Bal.
fig.)
31.7.23 To Bonus issue 5,000
(W.N.1) -
5.10.23 To Bank A/c 33,750 6,75,000
(right shares)
(W.N.4)
63,750 13,00,000 63,750 13,00,000

Working Notes:
25,000
(1) Bonus shares = = 5,000 shares
5
25,000 + 5,000
(2) Right shares = × 3 = 45,000 shares
2
1
(3) Sale of rights = 45,000 shares × 4
×`5
= 11,250 x 5 = 56,250
` 56,250 to be credited to statement of
profit and loss
3
(4) Rights subscribed = 45,000 shares × 4 × ` 20 = ` 6,75,000

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

Or
In determining the cost of inventories, it is appropriate to exclude certain
costs and recognise them as expenses in the period in which they are
incurred. Examples of such costs are:
(a) Abnormal amounts of wasted materials, labour, or other production
costs;
(b) Storage costs, unless the production process requires such storage.
(c) Administrative overheads that do not contribute to bringing the
inventories to their present location and condition.
(d) Selling and distribution costs.
(b) Journal Entries
` `
Equity Share Capital (old) A/c Dr. 15,00,000
To Equity Share Capital (` 10) A/c 5,00,000
To Cash A/c 50,000
To 10% Debentures A/c 7,50,000
To Securities premium 1,50,000
To Capital Reduction/Reconstruction 50,000
A/c
(Being new equity shares, 8% Debentures
issued, cash of ` 50,000 and the balance
transferred to Reconstruction account as
per the Scheme)
8% Debentures A/c Dr. 5,00,000
To Freehold Property A/c 4,45,000
To Capital Reduction/Reconstruction 55,000
A/c
(Being the debenture holders claim
settled partly and foregone partly as per
reconstruction scheme)

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

Capital Reduction/Reconstruction A/c Dr. 1,05,000

To Capital Reserves A/c 1,05,000
(Being balance in capital reduction
account transferred to Capital Reserves
A/c)

(c) (i) In the books of Kullu Branch

Trading and Profit and Loss Account

Particulars Amount Particulars Amount

` `
To Opening stock 2,70,000 By Sales 19,50,000
To Goods received 17,82,000 By Goods returned by 75,000
by Head office Branch
To Expenses 56,000 By Closing stock (Refer 4,17,000
W.N.)
To Net profit (Bal fig) 3,34,000
24,42,000 24,42,000

(ii) Calculation of Closing Stock

Cost price 100
Invoice price 120 (100+20)
Sales price 150 (120+25% of 120)
Opening Stock 2,70,000
Goods received 17,82,000
Less: Goods Returned 75,000
19,77,000
Less: Cost of Goods Sold (Invoice price) 15,60,000
Closing Stock 4,17,000
Stock reserve in respect of unrealised profit
= 4,17,000 x (20/120) = ` 69,500

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 PAPER – 1 : ADVANCED ACCOUNTING

Question No. 1 is compulsory.

Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions may be made and indicated in
answer by the candidates.
Working Notes should form part of the answer.
Question 1
(a) On 1st April, 2023, Green Limited started the construction of an Office
Building (qualified asset). The land under the building is regarded as a
separate asset and is not a part of qualifying asset.
For the purpose of construction of building, the company raised a specific
loan of ` 14 lakhs from a Bank at an interest rate of 12% per annum. An
interest income of ` 15,000 was earned on this loan while it was held in
anticipation of payments.
The company's other outstanding loans on 1 stApril, 2023 were as follows:

Amount of Loan Rate of Interest per annum

` 20,00,000 15%
` 30,00,000 8%

The construction of building started on 1 stApril, 2023 and was completed on

31st January, 2024 when it was ready for its intended use. Up to the date of
completion of the building, the following payments were made to the
contractor:

Payment date Amount in `

1st Apirl,2023 4,00,000
1st August,2023 10,00,000
1st December,2023 25,00,000
st
31 January,2024 5,00,000
 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

The life of building is estimated to be 20 years and depreciation is calculated

on straight line method.
You are required to:
(i) Calculate the amount of borrowing cost to be capitalized.
(ii) Pass initial journal entry to recognise the cost of building.
(iii) Depreciation on building for the year ending 31 st March, 2024.
(iv) Carrying value of building as on 31 st March, 2024.
(b) Well Wear Limited is a Textile Manufacturing Company and engaged in the
production of Polyester (P) and Nylon (N). While manufacturing the main
products, a by-product Fiber (F) is also produced. Details of the cost of
production are as under:
Purchase of Raw Material for manufacturing process of

30,000 units ` 3,50,000

Wages paid ` 1,60,000
Fixed overheads ` 1,20,000
Variable overheads ` 60,000
Output:
Polyester (P) 12,500 Units
Nylon (N) 10,000 Units
Fiber (F) 3,200 Units
Closing Inventory:
Polyester (P) 1,600 Units
Nylon(N) 400 Units

Average market price of Polyester and Nylon is ` 100 and ` 60 per unit
respectively, by-product Fiber is sold@ ` 40 per unit. There is a profit of
` 8,000 on sale of by-product after incurring separate processing expenses of
` 10,000 and packing charges of ` 9,000. ` 5,000 was realized from sale of
scrap.
On the basis of the above information, you are required to compute the value
of closing inventory of Polyester and Nylon. (7 + 7 = 14 Marks)

2
 SUGGESTED ANSWER
ADVANCED ACCOUNTING

Answer
(a) (i) Computation of borrowing cost to be capitalized for specific
borrowings and general borrowings based on weighted average
accumulated expenses

Date of Amount Financed Calculation `

incurrence of spent through
expenditure
1st April 2023 4,00,000 Specific 4,00,000 x 40,000
borrowing 12% x 10/12
1st August 10,00,000 Specific 10,00,000 x 1,00,000
2023 borrowing 12% x 10/12
1st December 25,00,000 General 25,00,000 x
2023 borrowing 10.8% x 2/12 45,000
31st January 5,00,000 General 5,00,000 x Nil
2024 borrowing 10.8% x 0/12
1,85,000
Less: interest income on borrowing (15,000)
Total amount borrowing cost to be capitalized 1,70,000

(ii) Journal Entry

Date Particulars ` `
31.1.2024 Building account Dr. 45,70,000
To Bank account 44,00,000
To Interest payable 1,70,000
(borrowing cost)
(Being expenditure incurred
on construction of building
and borrowing cost thereon
capitalized)

Note: In the above journal entry, it is assumed that interest amount

will be paid at the year end. Hence, entry for interest payable has
been passed on 31.1.2024.

3
SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Alternatively, following journal entry may be passed if interest is paid

on the date of capitalization:

Date Particulars ` `
31.1.2024 Building account Dr. 45,70,000
To Bank account 45,70,000
(Being expenditure incurred
on construction of building
and borrowing cost thereon
capitalized)

(iii) Depreciation on building for the year ending 31.3.2024

Cost of building 45,70,000
Life of building = 20 years
Depreciation = (45,70,000/20) x 2/12 = 38,083.33
(iv) Carrying Value of Building on 31st March 2024:
Carrying Value = Cost of Building - Accumulated Depreciation
= 45,70,000- 38,083.33
= 45,31,917
Working Notes:
1. Calculation of capitalization rate on borrowings other than
specific borrowings

Amount of loan (`) Rate of Amount of

interest interest (`)
20,00,000 15% = 3,00,000
30,00,000 8% = 2,40,000
50,00,000 5,40,000
Weighted average rate of = 10.8%*
5,40,000
interest ( × 100)
50,00,000

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

2. Total expenses to be capitalized for building

`
Cost of building ` (4,00,000 + 10,00,000 + 25,00,000 44,00,000
+ 5,00,000)
Add: Amount of interest to be capitalized 1,70,000
45,70,000

(b) As per AS 2 ‘Valuation of Inventories’, most by-products as well as scrap or

waste materials by their nature, are immaterial. They are often measured at
net realizable value and this value is deducted from the cost of the main
product.
Determination of value of closing inventory of Polyester and Nylon

Polyester Nylon
Closing inventory in units 1,600 units 400 units
Cost per unit ` 31.14 ` 18.68
Value of closing inventory ` 49,824 ` 7,472

Working Notes
1. Calculation of net realizable value of by-product, Fiber
`
Selling price of by-product Fiber (3,200 units x ` 40 1,28,000
per unit)
Less: Separate processing
charges of by-product Fiber (10,000)
Packing charges (9,000)
Net realizable value of by-product 1,09,000
Fiber

2. Calculation of cost of conversion for allocation between joint

products Polyester and Nylon
` `
Raw material 3,50,000

5
 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Wages 1,60,000
Fixed overhead 1,20,000
Variable overhead 60,000
6,90,000
Less: NRV of by-product Fiber (W.N. 1) (1,09,000)
Sale value of scrap (5,000) (1,14,000)
Joint cost to be allocated between 5,76,000
Polyester and Nylon

Determination of “basis for allocation” and allocation of joint cost

to Polyester and Nylon
Polyester Nylon
Output in units (a) 12,500 units 10,000 units
Sales price per unit (b) ` 100 ` 60
Sales value (a x b) ` 12,50,000 ` 6,00,000
Total value (12,50,000 + 6,00,000)
= 18,50,000
Joint cost of ` 5,76,000 allocated in the ` 3,89,189 ` 1,86,811
ratio of 12,50,000 : 6,00,000
Cost per unit [c/a] ` 31.14 ` 18.68

Question 2
Following is the summarized Balance Sheets of Z Limited as on 31 st March, 2024:

Particulars (`)
EQUITY AND LIABILITIES:
Share Capital
Equity shares of ` 100 each 60,00,000
8% Preference shares of ` 100 each 21,00,000
10% Debentures of ` 100 each 18,00,000
Trade Payables 16,80,000
Total 1,15,80,000
ASSETS:
Goodwill 81,000

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

Property, Plant and Equipment 72,00,000

Trade Receivables 13,75,000
Inventories 9,80,000
Cash at Bank 1,33,000
Own Debentures (Nominal value of ` 6 lakhs) 5,76,000
Profit and Loss A/c 12,35,000
Total 1,15,80,000

On 1stApril, 2024, court approved the following reconstruction scheme for Z

Limited:
(i) Each equity share shall be sub-divided into 10 equity shares of ` 10 each fully
paid up. After sub-division, equity share capital will be reduced by 40%.
(ii) Preference share dividends are in arrear for last 4 years. Preference
shareholders agreed to waive 75% of their dividend claim and accept
payment for the balance.
(iii) Own debentures of ` 2,40,000 (nominal value) were sold at 98 cum interest
and remaining own debentures were cancelled.
(iv) Debenture holders of ` 6,00,000 agreed to accept one machinery of book
value of ` 9,00,000 in full settlement.
(v) Remaining Property, Plant and Equipment were valued at ` 60,00,000.
(vi) Trade Payables, Trade Receivables and Inventories were valued at
` 15,00,000, ` 13,00,000 and ` 9,44,000 respectively. Goodwill and Profit and
Loss Account (Debit balance) are to be written off.
(vii) Company paid ` 60,000 as penalty to avoid capital commitments of ` 12
lakhs.
(viii) Interest on 10% Debentures is paid every year on 31st March.
You are required to:
(1) Pass necessary journal entries in the books of Z Limited to implement the
above schemes.
(2) Prepare Capital Reduction Account.
(3) Prepare Bank Account (14 Marks)

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Answer
1. Journal entries
In the Books of Z Ltd. as on 1st April 2024
Particulars Dr. Cr.
01.04.2024 Amount Amount
(`) (`)
1. Equity share capital A/c (` 100) Dr. 60,00,000
To Equity share capital A/c (` 10) 60,00,000
(Being sub-division of one share of
` 100 each into 10 shares of ` 10 each)
2. Equity share capital A/c (` 10) Dr. 24,00,000
To Capital reduction A/c 24,00,000
(Being reduction of Equity capital by 40%)
3. Capital reduction A/c Dr. 1,68,000
To Bank A/c 1,68,000
(Being payment in cash of 25% of arrear
of preference dividend) [21,00,000x8%] x
4 years
4. Bank A/c Dr. 2,35,200
To Own debentures A/c 2,30,400
(5,76,000/6,00,000) x 2,40,000
To Capital reduction A/c 4,800
(Being profit on sale of own debentures of
` 2,40,000 transferred to capital reduction
A/c)
5. 10% Debentures A/c Dr. 3,60,000
(6,00,000 -2,40,000)
To Own debentures A/c 3,45,600
To Capital reduction A/c 14,400
(Being profit on cancellation of own
debentures transferred to capital
reduction A/c)

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

6. 10% Debentures A/c Dr. 6,00,000

Capital reduction A/c Dr. 3,00,000
To Machinery or PPE A/c 9,00,000
(Being machinery taken up by debenture
holders for ` 6,00,000)
7. Capital reduction A/c (balancing figure) Dr. 3,00,000
To PPE A/c 3,00,000
(72,00,000 - 9,00,000 - 60,00,000)
(Being PPE revalued)
8. Trade payables A/c Dr. 1,80,000
(16,80,000 -15,00,000)
To Trade receivables A/c 75,000
(13,75,000-13,00,000)
To Inventory A/c 36,000
(9,80,000-9,44,000)
To Capital Reduction A/c 69,000
(Being assets and liabilities revalued)
9. Capital reduction A/c Dr. 13,16,000
To Goodwill A/c 81,000
To Profit and Loss A/c 12,35,000
(Being the above assets written off)
10. Capital reduction A/c Dr. 60,000
To Bank A/c 60,000
(Being penalty paid for avoidance of
capital commitments)
11. Capital reduction A/c Dr. 3,44,200
To Capital reserve A/c 3,44,200
(Being the credit balance in Capital
Reduction A/c transferred to Capital
Reserve)

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

2. Capital Reduction Account

(`) (`)
To Bank 1,68,000 By Equity Share Capital 24,00,000
To Property, Plant & 3,00,000 By Trade Payable 1,80,000
Equipment
To Property, Plant & 3,00,000 By Bank A/c (Profit on 4,800
Equipment Sale)
To Trade Receivables 75,000 By 10% debentures A/c 14,400
(Profit on cancellation)
To Inventory 36,000
To Goodwill 81,000
To Profit and Loss A/c 12,35,000
To Cash/Bank A/c 60,000
To Capital Reserve 3,44,200
25,99,200 25,99,200

3. Bank Account
` `
To To balance b/d 1,33,000 By Capital Reduction 1,68,000
To Own Debenture 2,35,200 By Capital Reduction A/c 60,000
(2,30,400 +4,800) By balance c/d 1,40,200
3,68,200 3,68,200

Question 3
(a) Constructions Limited is engaged in the business of constructing Flyovers and
Railway over bridges. It obtained a contract from Railway Authorities to
construct a railway over bridge for ` 400 crores. The construction of the
railway over bridge is expected to be completed in 4 years.
At the outset of the contract, it was estimated that the total costs to be
incurred will be ` 370 crores but by the end of year 1, this estimate stands
revised to ` 375 crores.

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

During year 3, the Construction Limited has requested for a variation in the
contract which is approved by Railway Authorities and accordingly the total
contract value will increase by ` 10 crores and costs will increase by ` 7
crores.
The Constructions Limited decided to measure the stage of completion on the
basis of the proportion of contract costs incurred to the total estimated
contract costs. Contract costs incurred at the end of each year is:
Year 1 ` 98.8 crores
Year 2 ` 202.4 crores
Year 3 ` 310 crores (including unused material of 3 crores)
Year 4 ` 382 crores
You are required to:
(1) Calculate stage of completion of contract for each year
(2) Profit to be recognised for each year.
(b) The following information is provided for Aarambh Limited:

Particulars 31st March 2023 31st March 2024

( `) ( `)
Profit and Loss a/c 5,400 (Dr.) 37,800
Provision for Taxation 2,21,400 1,35,000
General Reserve 54,000 81,000
12% Debentures 1,18,000 2,91,600
Trade Payables 1,29,600 1,18,800
8% Current Investments 54,000 1,08,000
Property, plant and equipment (Gross) 3,99,600 3,99,600
Accumulated Depreciation 1,29,600 1,62,000
Trade Receivables (Gross) 81,000 2,61,360
Provision for Doubtful Debts 27,000 54,000
Inventories 1,35,000 81,000
Cash and Cash Equivalents 54,00 30,240

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Additional information:
(i) Income tax provided during the year ` 1,62,000.
(ii) New debentures have been issued at the end of current financial year.
(iii) New investments have been acquired at the end of the current financial
year.
You are required to calculate net Cash Flow from Operating Activities.
(7 Marks + 7 Marks = 14 Marks)
Answer
(a) (a) Stage of completion = Costs incurred to date / Total estimated
costs
Year 1: 98.8 crore / 375 crore = 26.35%
Year 2: 202.4 crore / 375 crore = 53.97%
Year 3: (310 crore – 3 crore) / (375+7) crore = 80.37%
Year 4: 382 crore / 382 crore = 100%
(b) Profit to be recognized each year has been calculated as follows:
Year 1 Year 2 Year 3 Year 4
Contract 105.40 110.48 crore 113.64 crore 80.48 crore
Revenue (1) crore
(400 crore (400 crore x (410 crore x (410 crore x
x 26.35%) 53.97% - 80.37% 100% -
105.40 crore) - 105.40 crore 105.40 crore -
-110.48 crore) 110.48 crore -
113.64 crore)
Contract 98.8 crore 103.60 crore 104.60 crore 75 crore
Cost (2)
202.40 - (307 crore - (382 crore -
98.80 crore) 98.8 crore- 98.8 crore-
103.60 crore) 103.6 crore –
104.6 crore)
Contract 6.60 crore 6.88 crore 9.04 crore 5.48 crore
Profit
(1) – (2)

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

(b) Cash Flow from Operating Activities

`
Difference between Profit and Loss Account ` (37,800 + 5,400) 43,200
Add: Transfer to General Reserve (81,000-54,000) 27,000
Add: Adjustment for Provision for taxation 1,62,000
Profit Before tax 2,32,200
Add: Adjustment for Depreciation (` 1,62,000 – ` 1,29,600) 32,400
Add: Adjustment for provision for doubtful debt (` 54,000 – 27,000
` 27,000)
Add: Debenture Interest Paid ` (1,18,800 × 12%) 14,256
Less: Income from Investments (54,000 × 8%) (4,320)
Operating Profit before Working Capital changes 3,01,536
Decrease in Inventories ` (1,35,000-81,000) 54,000
Increase in Trade receivables ` (2,61,360-81,000) (1,80,360)
Decrease in Trade payables ` (1,29,600-1,18,800) (10,800)
Cash generated from operations 1,64,376
Income tax paid (2,48,400)
Net Cash generated from Operating Activities (84,024)

Working Note:
Provision for taxation account
` `
To Cash (Paid) 2,48,400 By Balance b/d 2,21,400
(Balancing figure)
To Balance c/d 1,35,000 By Profit and Loss A/c 1,62,000

3,83,400 3,83,400

Question 4
Intelligent Limited and Diligent Limited are carrying their business independently
for last two years. Following financial information in respect of both the
companies as at 31 st March, 2024 has been given to you:

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Particulars Intelligent Limited Diligent Limited

(` ) (`)
Equity Shares Capital of ` 100 each 12,00,000 10,00,000
8% Preference shares of ` 100 each 3,00,000 2,00,000
Trade Payables 12,00,000 4,00,000
Retirement Gratuity Fund (Long Term) 3,00,000 2,00,000
Profit and Loss Account
Opening balance 4,50,000 2,50,000
Profit for the current year 2,50,000 1,50,000
Land and Buildings 10,00,000 8,00,000
Plant and Machinery 10,00,000 6,00,000
Inventories 7,00,000 4,00,000
Trade Receivables 6,00,000 3,00,000
Cash and Bank 4,00,000 1,00,000

On 1st April, 2024, both the companies agreed to amalgamate and form a new
company 'Genius Limited, with an authorized capital of ` 40,00,000 divided into
30,000 equity shares of ` 100 each and 10,000 8% preference shares of ` 100
each.
The amalgamation has to be carried out on the basis of following agreement:
(1) Assets of both the companies were to be revalued as follows:

Particulars Intelligent Limited (`) Diligent Limited (`)

Land and Buildings 11,00,000 8,50,000
Plant and Machinery 9,00,000 4,00,000
Inventories 6,00,000 3,00,000

(2) Trade payables of Intelligent Limited includes ` 1,00,000 due to Diligent Ltd.
and the Trade receivables of Diligent Limited shows ` 1,00,000 receivables
from Intelligent Limited.
(3) The purchase consideration is to be discharged in the following manner:
(i) Issue 22,000 Equity Shares of ` 100 each fully paid up in the proportion
of the sum of their profitability in the preceding two financial years.

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

(ii) Preference shareholders of both companies are issued equivalent

number of 8% Preference Shares of ` 100 each of Genius Limited at a
price of ` 125 per share.
(iii) 12% debentures of ` 100 each in Genius Limited at par to provide an
income equivalent to 10% return on the basis of net assets in their
respective business as on 1 st April, 2024 after revaluation of assets.
You are required to:
(a) Compute the amount of Shares & Debentures to be issued to Intelligent
Limited and Diligent Limited.
(b) Prepare a Balance Sheet of Genius Limited showing the position immediately
after amalgamation. (14 Marks)
Answer
Computation of shares and debentures to be issued

Intelligent Ltd. Diligent Ltd.

(i) Equity shares 22,000 x 7/11 = 14,000 14,00,000
(W.N.1)
22,000 x 4/11 =8,000 8,00,000
(W.N.1)
(ii)Preference 3,00,000 3,75,000
( × 125)
shares 100
2,00,000 2,50,000
( × 125)
100
(iii) Debentures Refer (W.N.3) 17,50,000 11,25,000
Total Purchase Consideration (i + ii + iii) 35,25,000 21,75,000

Balance Sheet of Genius Limited

as at 1st April, 2024 (after amalgamation)

Notes no. `
I. Equity and Liabilities
(1) Shareholder’s fund
(a) Share Capital 1 27,00,000
(b) Reserves & Surplus 2 1,25,000

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

(2) Non-current Liabilities

(a) Long term borrowings 3 28,75,000
(b) Other non-current liabilities 4 5,00,000
(3) Current Liabilities
(a) Trade Payables 15,00,000
(12,00,000 + 4,00,000 – 1,00,000)
Total 77,00,000
II. Assets
(1) Non-current Assets
(a) Property, Plant & Equipment 5 32,50,000
(b) Intangible Assets 6 22,50,000
(2) Current Assets
(a) Inventories (6,00,000 + 3,00,000) 9,00,000
(b) Trade Receivables 8,00,000
(6,00,000 + 3,00,000 - 1,00,000)
(c) Cash & Cash Equivalents 5,00,000
Total 77,00,000

Notes to Accounts:

Sr. Particular `
No.
1. Share Capital
Authorized Share Capital
a) Equity Share Capital
30,000 Equity Shares of ` 100 each 30,00,000
b) Preference Share Capital
10% 10,000 Preference Shares ` 100 each 10,00,000
40,00,000
Issued, Subscribed & Paid-up Capital
a) Equity Share Capital

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

22,000 Equity Shares of `100 each 22,00,000

(out of the above all shares are issued for
consideration other than cash)
b) Preference Share Capital
10% 5,000 Preference Shares of `100 each 5,00,000
(out of the above all shares are issued for
consideration other than cash)
27,00,000
2. Reserves & Surplus
Securities Premium 1,25,000
3. Long term borrowings
12% Debentures of ` 100 each 28,75,000
4. Other Non-current Liabilities
Gratuity Fund 5,00,000
5. Property, Plant & Equipment
Land & Building (11,00,000 + 8,50,000) 19,50,000
Plant & Machinery (9, 00,000 + 4,00,000) 13,00,000
32,50,000
6. Intangible Assets
Goodwill 22,50,000

Working Notes:
1. Calculation of Ratio of Equity Shares

Intelligent Ltd. Diligent Ltd


Opening balance P&L 4,50,000 2,50,000
Profit for the current year 2,50,000 1,50,000
Total 7,00,000 4,00,000


As the company has been in existence for two years, the opening balance of profit and
loss account has been assumed to be the profit of the previous year.

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

The total profits- ` 7,00,000+ ` 4,00,000 = ` 11,00,000.

No. of shares to be issued = 22,000 equity shares in the proportion of the
preceding 2 years’ profits. i.e. in 7:4.
2. Calculation of Net assets as on 31.3.2024

Particulars Intelligent Ltd. Diligent Ltd

Assets (after revaluation)
Land and Buildings 11,00,000 8,50,000
Plant & Machinery 9,00,000 4,00,000
Inventories 6,00,000 3,00,000
Trade Receivables 6,00,000 3,00,000
Cash & Cash Equivalents 4,00,000 1,00,000
Total (a) 36,00,000 19,50,000
Liabilities
Trade Payables 12,00,000 4,00,000
Gratuity Fund 3,00,000 2,00,000
Total (b) 15,00,000 6,00,000
Net Assets (a – b) 21,00,000 13,50,000

3. Calculation of 12% Debentures to be issued to Intelligent Ltd. and

Diligent Ltd.

Intelligent Ltd. Diligent Ltd

` `
Net assets (Refer working note) 21,00,000 13,50,000
10% return on Net assets 2,10,000 1,35,000
12% Debentures to be issued 17,500
100
[2,10,000× ] =17,50,000of ` 100 each
12
100 11,250
[1,35,000× ] =11,25,000 of ` 100 each
12

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

4. Calculation of Goodwill / Capital Reserve

S. Particulars Intelligent Diligent

No. Ltd. Ltd.
(i) Purchase Consideration Paid 35,25,000 21,75,000
(ii) Less: Net Assets 21,00,000 13,50,000
(iii) Goodwill 14,25,000 8,25,000 22,50,000

Alternatively:
4. Calculation of Goodwill / Capital Reserve
S. Particulars Intelligent Diligent
No. Ltd. Ltd
(i) Purchase Consideration Paid 35,25,000 21,75,000
(ii) Less: Net Assets* 22,00,000 12,50,000
(iii) Goodwill 13,25,000 9,25,000 22,50,000
* Calculation of Net assets taken over

Particulars Intelligent Ltd. Diligent Ltd

Assets (after revaluation)
Land and Buildings 11,00,000 8,50,000
Plant & Machinery 9,00,000 4,00,000
Inventories 6,00,000 3,00,000
Trade Receivables 6,00,000 2,00,000*
Cash & Cash Equivalents 4,00,000 1,00,000
Total (a) 36,00,000 18,50,000
Liabilities
Trade Payables 11,00,000** 4,00,000
Gratuity Fund 3,00,000 2,00,000
Total (b) 14,00,000 6,00,000
Net Assets (a – b) 22,00,000 12,50,000

*` 3,00,000 - ` 1,00,000= ` 2,00,000

**` 12,00,000 - ` 1,00,000 = ` 11,00,000

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Question 5
The Balance Sheets of Art Limited and Craft Limited as on 31 March 2024 are as
below:

Particulars Note Art Limited Craft Limited

No (`) (`)
I. Equity and Liabilities
a. Shareholder’s Fund
i. Share Capital 1 6,50,000 4,00,000
ii. Reserve & Surplus 2 3,12,000 2,48,000
b. Current Liabilities
i. Trade Payables 1,45,000 92,000
ii. Short term borrowings 3 70,000 -
11,77,000 7,40,000
II. Assets
a. Non-current Assets
i. Property, Plant & 4 4,21,000 3,60,000
Equipment
ii. Non-current investment 5 4,32,000 -
b. Current Assets
i. Inventories 1,66,000 2,05,000
ii. Trade Receivables 6 1,33,500 1,68,300
iii. Cash & Cash equivalent 24,500 6,700
11,77,000 7,40,000

Notes to Accounts:

Art Limited Craft Limited

( `) (`)
1. Share capital
6,500 shares of ` 100 each fully paid up 6,50,000
4,000 shares of ` 100 each fully paid-up - 4,00,000
Total 6,50,000 4,00,000
2. Reserves and Surplus

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

General Reserve 1,20,000 40,000

Profit and Loss account 1,92,000 2,08,000
Total 3,12,000 2,48,000
3. Short term borrowings -
Bank Overdraft 70,000
4. Property Plant & Equipment
Land & Building 1,90,000 1,35,000
Plant & Machinery 2,31,000 2,25,000
Total 4,21,000 3,60,000
5. Non-current investments -
Investment in Craft Limited (Cost) 4,32,000
6. Cash & Cash equivalents
Cash 24,500 6,700

Additional information:
(i) Art Limited acquired 3,200 ordinary shares of Craft Limited on 1 st October,
2023. The Reserve & Surplus and Profit & Loss Account of Craft Limited
showed a credit balance of ` 40,000 and ` 58,700 respectively as on 1 st April,
2023.
(ii) The Plant & Machinery of Craft Limited which stood at ` 2,50,000 as on
1st April, 2023 was considered worth ` 2,20,000 on the date of acquisition.
The depreciation on Plant & Machinery is calculated @ 10% p.a. on the basis
of useful life. The revaluation of Plant & Machinery is to be considered at the
time of consolidation.
(iii) Craft Limited deducts 1% from Trade Receivables as a general provision
against doubtful debts. This policy is not followed by Art Limited.
(iv) On 31st March 2024, Craft Limited's inventory includes goods which it had
purchased from Art Limited for 1,03,500 which made a profit of 15% on cost
price.
You are required to prepare a consolidated Balance Sheet as on 31 st March 2024.
(14 Marks)

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Answer
Consolidated Balance Sheet of Art and Craft Ltd
As on 31st March, 2024

Particulars Note no. `

I. Equity & Liabilities
(1) Shareholders’ fund
(a) Share Capital 1 6,50,000
(b) Reserves & Surplus 2 3,73,460
(2) Minority Interest 3 1,26,740
(3) Current Liabilities
(a) Short term borrowings 4 70,000
(b) Trade Payables (1,45,000 + 92,000) 2,37,000
Total 14,57,200
II. Assets
(1) Non-current Assets
(a) Property, Plant & Equipment 5 7,65,000
(2) Current Assets
(a) Inventories 6 3,57,500
(b) Trade Receivables 7 3,03,500
(c) Cash & Cash Equivalents 8 31,200
Total 14,57,200

Notes to Accounts

Sr. No. Particulars `

1. Share Capital
Issued, Subscribed & Paid-up Capital
a) Equity Share Capital
6,500 Equity Shares of ` 100 each 6,50,000

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

2. Reserves & Surplus

Profit & Loss A/c (WN 5) 2,40,100
General Reserve (WN 5) 1,20,000
Capital Reserve (W.N. 3) 13,360
3,73,460
3. Minority interest in Craft Ltd. (W.N.4) 1,26,740
4. Short-term borrowings
Bank Overdraft 70,000
5. Property, Plant & Equipment
Land & Building
Art Ltd. 1,90,000
Craft Ltd. 1,35,000 3,25,000
Plant & Machinery
Art Ltd. 2,31,000
Craft Ltd. (2,25,000-17,500+1,500) 2,09,000 4,40,000
7,65,000
6. Inventories
Art Ltd. 1,66,000
Craft Ltd. 2,05,000
Less: unrealized profit (13,500) 3,57,500
7. Trade Receivables
Art Ltd. 1,33,500
Craft Ltd. 1,70,000 3,03,500
8. Cash & Cash Equivalents
Art Ltd. 24,500
Craft Ltd. 6,700 31,200

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Working Notes:
1. Shareholding Pattern

Total 4,000 shares

3,200 shares 800 shares
Art Ltd (80%) 20% Minority Interest

2. Analysis of Profit

General reserve Profit and loss account

Opening balance 40,000 58,700
Closing balance 40,000 2,08,000
Changes during the year 1,49,300

Analysis of Profit

Particulars Pre acquisition Post acquisition

profit (6 months) profit (6 months)
(`) (`)
Opening Balances 98,700
(40,000 + 58,700)
Profit for 6 months 74,650 74,650
(1,49,300 x 6/12)
Provision reversed 850 850
(1,700) (W.N. 8)
Revaluation Loss (W.N. 6) (17,500) -
Savings in depreciation (W.N. 6) - 1,500
Total 1,56,700 77,000
Holding (80%) 1,25,360 61,600
Minority Interest (20%) 31,340 15,400

3. Cost of Control

Particulars ` `
Cost of Investment (Given) 4,32,000

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

Less: Share in Net Assets:

a) Share Capital (3,200 shares × `100) 3,20,000
b) Capital Profit (W.N. 2) 1,25,360 (4,45,360)
Capital Reserve 13,360

4. Minority Interest

Particulars `
Share Capital (800 shares × 100) 80,000
Capital Profit (W.N. 2) 31,340
Revenue Profit (W.N. 2) 15,400
Total 1,26,740

5. Consolidated Profit and General Reserve of Art Ltd

Particulars Profit and loss General

account ` reserve `
Balance as per Balance Sheet 1,92,000 1,20,000
Revenue Profit 61,600 -
Unrealized Profit (Downstream) (13,500)
Total 2,40,100 1,20,000

6. Calculation of Revaluation Profit /Loss

Particulars `
Balance as on 01.04.2023 (given) 2,50,000
Depreciation for 6 months (2,50,000 × 10% × 6/12) (12,500)
WDV as on date of acquisition 2,37,500
Revalued amount 2,20,000
Revaluation Loss 17,500

7. Savings in Depreciation
= Depreciation Provided for 6 months – Depreciation Should be
= 12,500 – (2,20,000 × 10% × 6/12)
= 1,500

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

8. Calculation of provision reversed

Trade Receivable (Given) =1,68,300 it is after provision i.e 99%
So, 100% will be 1,70,000 therefor provision will be 1,700
As per para 20 and 21 of AS 21, Consolidated financial statements:
Consolidated financial statements should be prepared using uniform
accounting policies for like transactions and other events in similar
circumstances. If it is not practicable to use uniform accounting policies in
preparing the consolidated financial statements, that fact should be
disclosed together with the proportions of the items in the consolidated
financial statements to which the different accounting policies have been
applied.
Question 6
(a) Colour Limited leased a Machine to Red Limited on 1 April, 2021 on the
following:

Cost of the machine ` 18,00,000

Lease term 3 Years
Fair market value of the machine ` 18,00,000
Unguaranteed residual value as on 31.3.2024 ` 2,00,000
Internal rate of return 12%

Other information:
The expected useful life of the machine is 5 years. The machine will revert to
Colour Limited on termination of the lease. The lease payment is to be made
at the end of each year in 3 equal parts.
The present value of ` 1 due at the end of 3 rd year at 12% rate of interest is
` 0.7118. The present value of annuity of at ` 1 due at the end of 3 rd year at
12% IRR is ` 2.4018.
You are required to analyze whether lease constitutes finance lease. Also
calculate unearned finance income, if any.

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

OR
(a) On 1 April 2023, ABC Limited has given the following information:
`
50,000 equity shares of ` 100 each ( ` 80 paid up by all 40,00,000
shareholders)
2,00,000 8% Preference shares of ` 10 each 20,00,000
10,000, 12% Debentures of ` 100 each 10,00,000
(Each debenture is convertible into 3 equity shares of ` 100
each)

On 1" July 2023, the remaining ` 20 was called up and paid by all the
shareholders except one shareholder holding 10,000 equity shares. During
the year 2023-24 the company had a profit after tax of ` 3,44,000.
Tax rate is 30%.
You are required to compute Basic and Diluted EPS. (4 Marks)
(b) Following information are available in respect of Z Limited as on 31 st March,
2024
1. Equity shares of ` 100 each ` 500 lakhs
2. General Reserve ` 100 lakhs
3. Loss for the year ending 31 st March, 2024 ` 5 lakhs
Due to absence of profits during the year 2023-24, the management
recommends to declare dividend of 10% on equity share capital out of
general reserve.
The rates of equity dividend for the last 5 years immediately preceding the
year 2023-24 are as follows:
2022-23 2021-22 2020-21 2019-20 2018-19
12% 14% 10% 10% 7%
As an accountant of the company, you are required to suggest whether the
recommendation of the management is justified? If, you do not agree, then
suggest the rate of dividend. (4 Marks)

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

(c) Smart Limited is an Indian Company and has its Branch at New York. The
following balances in respect of Smart Limited's USA Branch office are
provided:
(i) Debit Balances (in USD)
Expenditure (excluding Depreciation) : 1,03,095
Cash & bank balances : 2,175
Debtors : 7,365
Fixed Assets (Gross) : 34,200
(Rate of Depreciation on Fixed Assets: 20%)
Inventory-Stock 'P' : 5,520
Inventory- Stock 'Q' : 1,035
(ii) Credit Balances (in USD)
Incomes : 1,32,000
Creditors : 15,570
HO Control a/c : 5,820
The following additional information is provided:
(1) The average exchange rate during the above financial year was 1 USD
= ` 56.
(2) The fixed assets were purchased when the exchange rate was 1 USD
` 55.
(3) The closing exchange rate on reporting date is 1 USD = ` 58.
(4) Stock item 'P' is valued at cost of USD 5,520, purchased when the
exchange rate was ` 56.50. The present net realizable value of this item
is ` 2,85,000.
(5) Stock item 'Q' is carried at net realizable value of USD 1,035, but its cost
in USD is 1,065, It was purchased when exchange rate was 1 USD
= ` 53.
(6) Branch Control Account as per HO books was ` 2,66,265.

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

You are required to show how it will be reflected in the books of Head Office
in the form of Trial Balance, if the USA Branch Office is classified as an
Integral Foreign Operation. (6 Marks)
Answer
(a) Computation of Annual Lease Payment

Particulars Amount
Cost of Equipment 18,00,000
Unguaranteed Residual Value 2,00,000
Present Value of unguaranteed residual value 1,42,360
(` 200,000 x 0.7118)
Present Value of Lease Payments
(` 18,00,000 – ` 1,42,360) 16,57,640
Present Value of Annuity for three years is 2.4018
Annual Lease Payment (16,57,640 / 2.4018) 6,90,165.71

Classification of Lease:
Parameter 1:
The present value of lease payment i.e. ` 16,57,649 which equals 92.09% of
the fair market value i.e., ` 18,00,000.
The present value of minimum lease payments is substantially covers the
fair value of the leased asset
Parameter 2:
The lease term (i.e. 3 years) covers the major part of the life of the asset (i.e.
5 years).
Therefore, it constitutes a finance lease.
Computation of unearned Finance Income:

Particulars Amount
Total Lease Payments (` 6,90,165 x 3) ` 20,70,495
Add: Unguaranteed residual value ` 2,00,000
` 22,70,495

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Less: Present value of lease payments and residual value

i.e. Net investment (1,42,360+16,57,640) ` 18,00,000
Unearned Finance Income ` 4,70,495

OR
(a) Basic Earnings per share (EPS) =
Net profit attributable to equity shareholders
Weighted average number of equity shares outstanding during the year
1,84,000
= = ` 4 per share
46,000 Shares (as per working note)

Diluted earnings per share

Net profit for the current year ` 3,44,000

No. of equity shares outstanding 50,000
Basic earnings per share `4
No. of 12% convertible debentures of ` 100 10,000
each
Each debenture is convertible into 3 equity
shares
Interest expense for the current year ` 1,20,000
Tax relating to interest expense (30%) ` 36,000
Adjusted net profit for the current year ` (1,84,000 + 1,20,000 -
36,000) = ` 2,68,000
No. of equity shares resulting from 30,000
conversion of debentures
No. of equity shares used to compute diluted 46,000 + 30,000 = 76,000
earnings per share
Diluted earnings per share 2,68,000 / 76,000 = ` 3.53

Working Note:
1. Net profit attributable to equity share holders = Net profit less
preference dividends
Total earnings – preference shares dividend

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

` 3,44,000 – ` (8% x 20,00,000)

` 3,44,000 - ` 1,60,000
= ` 1,84,000
2. Calculation of weighted average number of equity shares
As per AS 20 ‘Earnings Per Share’, partly paid equity shares are treated
as a fraction of equity share to the extent that they were entitled to
participate in dividend relative to a fully paid equity share during the
reporting period. Assuming that the partly paid shares are entitled to
participate in the dividend to the extent of amount paid, weighted
average number of shares will be calculated as follows:

Date No. of equity Amount paid Weighted average

shares per share no. of equity shares
` ` `
01.04.2023 50,000 80 50,000x 80/100x 3/12
= 10,000
01.07.2023 40,000 100 40,000 x 9/12
= 30,000
01.07.2023 10,000 80 10,000x 80/100x 9/12
= 6,000
Total weighted average equity shares 46,000

(b) In case of declaration of dividend out of free reserves, there are 3

conditions:
(1) Dividend Rate < Average Rate of last 3 years
10% < 12% [(12+14+10)/3]
Condition is Satisfied
(2) Dividend Distributed < 10% of PUSC + Reserve and Surplus
50,00,000 < 59,50,000 [(5,00,00,000 + 1,00,00,000 – 5,00,000) × 10%]
Condition is Satisfied
(3) Reserves after dividend > 15% of PUSC 45,00,000 not > 75,00,000
(5,00,00,000 × 15%)

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Condition is Not Satisfied

(4) The closing balance of reserves after payment of dividend and set off
of loss = ` 75,00,000
Therefore, can be utilized = 20,00,000 (1,00,00,000 – 5,00,000 – 75,00,000)
Thus, rate of dividend = (20,00,000/5,00,00,000) = 4%
Alternatively
To judge the recommendation of management, the satisfaction of all three
conditions is to be checked:
(1) Condition I
The proposed dividend of 10% is less than the average rate of dividend
being 12%
(i.e.) (12+14+10) /5 =12 %.
Hence, this condition is satisfied.
(2) Condition II
Amount to be withdrawn.

10% dividend on Equity share capital 50,00,000

+ Loss of Current year 5,00,000
Amount to be drawn from General Reserve 55,00,000

Maximum amount that can be withdrawn should not exceed 10% of

paid-up share capital + free reserves.
= 10% of [` 500 lakhs + ` 100 lakhs] = ` 60,00,000
As the amount to be withdrawn is within the maximum limit, hence,
this condition is also satisfied.
(3) Condition III
Balance of reserves after withdrawal (100-55) ` 45,00,000
15% of paid-up capital ` 75,00,000
As the balance of reserves should not be less than 15% of its paid-up
share capital, but here the balance of reserves after withdrawal is less

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

than 15% of paid-up share capital, hence this condition is not satisfied,
hence, 10% dividend cannot be declared.
Maximum withdrawal of Reserve if condition II is satisfied.
Opening balance of Reserves in the beginning = ` 1,00,00,000
of the year
- Closing balance of reserves being 15% of =` 75,00,000
paid-up capital
Reserves available = ` 25,00,000
Maximum permissible Divisible Profits
Permissible withdrawal as above = ` 25,00,000
Less: Current Year's Loss =` 5,00,000
Maximum permissible Divisible profit = ` 20,00,000
Actual permissible rate of Dividend =
(` 20,00,000 / ` 5,00,00,000) x 100 = 4%
Therefore, the recommendation of management is not justified and a
dividend only up to a rate of 4% can be declared.
(c) Converted branch trail balance (in the books of head office)

Particular Dr. $ Cr. $ Rate ` Dr. ` Cr.

per $
Expenditure 1,03,095 56 57,73,320
Cash & bank 2,175 58 1,26,150
balance
Debtors 7,365 58 4,27,170
Fixed assets 27,360 55 15,04,800
Depreciation 20% 6,840 55 3,76,200
Inventory P 5,520 Direct 2,85,000
Inventory Q 1,065 53 56,445
Income 1,32,000 56 73,92,000
Creditors 15,570 58 9,03,060

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

HO control A/c 5,820 2,66,265

Exchange difference 12,240
85,61,325 85,61,325

Working Note:

Inventory P $ 5,520 Inventory Q $ 1,065

Purchased Cost rate 56.50 NRV $ 1,035
NRV ` 2,85,000 Closing rate 58
Cost ` 3,11,880 Purchased Cost 53
rate
Value at cost or NRV ` 2,85,000 Value at cost or $ 1,035 @ ` 58 or
whichever is less NRV whichever $1,065 @ ` 53
is less = 56,445 or 60,030

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 PAPER – 5: ADVANCED ACCOUNTING
Question No.1 is compulsory.
Candidates are also required to answer any four questions from the remaining five questions.
Working notes should form part of the respective answers.
Wherever necessary, candidates are permitted to make suitable assumptions which should be
disclosed by way of a note.
Question 1
(a) Sapphire Limited earned Net profit of ` 39,00,000 and ` 59,40,000 for the years 2021-22
& 2022-23 respectively.
The following information were given for 2022-2023:
(i) The company declared Rights issue of two new shares for each five outstanding
shares.
(ii) 4,00,000 shares were outstanding prior to Rights issue.
(iii) Rights issue price was ` 27.50 and the last date to exercise rights was 1 stJuly, 2022.
(iv) Fair value of one equity share immediately prior to exercise of rights on 1 st July,2022
was` 143.
You are required to Compute Basic Earnings Per Share as per AS-20:
(i) For the year 2021-22, and
(ii) For the year 2022-23
(b) The accountant of Beryl Limited has asked you to identify the following items as – Change
in Accounting Policies / Change in Accounting Estimates / Extraordinary Items / Prior
period items / Ordinary Activity:
(i) Non-provision for salary already due in earlier year.
(ii) Attachment of the property of the enterprise.
(iii) Introduction of new pension scheme for employees.
(iv) Change in Reserve for obsolete inventory.
(v) Settlement of litigation case.
(vi) Actual Bad debts exceeds the provision.
(vii) Legislative changes having long term retrospective application.
(viii) Capitalisation of working capital loan interest.

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(ix) Change from Cost Molde to Revaluation Model for measurement of carrying amount
of PPE.
(x) Government sanctioned grant in current year for expenses incurred in previous
accounting year.
(c) The following particulars are stated in the Balance Sheet of Siddhi Limited as on
31st March,2022:
Particulars (` In lakhs)
Deferred Tax Liabilities (Cr.) 2.50
Deferred Tax Assets (Dr.) 1.35
The following transactions were reported during the year 2022-23:
` in lakhs
(i) Depreciation as per accounting records 15.00
(ii) Depreciation as per income tax records 20.00
(iii) Interest paid to NBFC accounted in books on accrual basis but 6.00
paid on 30.06.2023
(iv) Items disallowed for tax purposes in 2021-22 but allowed in 2022- 1.05
23
(v) Donation to Private Trust 40.00
(vi) Tax rate 15%
(vii) There were no additions to fixed assets during the year.
You are required to calculate the Deferred Tax Asset and Deferred Tax Liability as on
31-03-2023 as per AS-22.
(d) Garnet Limited has 4 operating segments. The total revenue (internal and external) and
assets are set out as below:
Segment Inter Segment Sales External Sales Total Assets
Fan 3,200 10,900 23,700
Light 200 1,400 13,200
Lamp 0 1,500 4,200
Printer 1,100 200 3,400
TOTAL 4,500 14,000 44,500
How many reportable segments does Garnet Limited have as per the Revenue and Assets
criteria given in AS 17? State Reasons for your answer. (5 Marks x 4 Parts = 20 Marks)

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Answer
(a) Computation of Basic Earnings Per Share
Year Year
2021-22 2022-23
` `
EPS for the year 2021-22 as originally reported
Net profit of the year attributable to equity shareholders
Weighted average number of equity shares outstanding during the year
= (` 39,00,000 / 4,00,000 shares) 9.75
EPS for the year 2021-22 restated for rights issue
= [` 39,00,000 / (4,00,000 shares  1.3*)] 7.5
EPS for the year 2022-23 including effects of rights issue
` 59,40,000
(4,00,000 × 1.3 × 3/12) + (5,60,000 × 9/12)
` 59,40,000 10.8
5,50,000 (approx..)
*Refer working note 2.
Working Notes:
1. Computation of theoretical ex-rights fair value per share
Fair value of all outstanding shares immediately prior to
exercise of rights + Total amount received from exercise
Number of shares outstanding prior to exercise +
Number of shares issued in the excercise

=
( ` 143 × 4,00,000 shares ) + ( ` 27.5 × 1,60,000 shares ) =
6,16,00,000
= `110
4,00,000 shares + 1,60,000 shares 5,60,000 shares
2. Computation of adjustment factor
Fair value per share prior to exercise of rights
=
Theoretical ex-rights value per share
` 143
= = ` 1.3 (approx.)
` 110 (Refer Working Note 1)

(b) (i) Prior Period item

(ii) Attachment of property of enterprise is an extraordinary item.

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(iii) Introduction of new pension scheme for employes is not a change in accounting
policy. It is an ordinary activity.
(iv) Change in provision for obsolete inventory is a change in accounting estimate.
(v) Litigation settlement is an ordinary activity but requires separate disclosure
(vi) Change in estimate
(vii) Ordinary activity requiring separate disclosure
(viii) Error
(ix) Change in Accounting policy.
(x) Ordinary activity requiring separate disclosure or extra ordinary item.
(c) Balances of Deferred tax assets and Deferred tax liability as on 31 st March, 2023
` (in lakhs)
Deferred tax liability (Cr.) (2.5 +.75) 3.25
Deferred tax asset (Dr.) (1.35 - .158*) 1.192
Working Note:
Impact of various items in terms of deferred tax liability / deferred tax asset
S. Transactions Nature of Effect Amount (`)
No. difference
(i), (ii) Difference in Responding Creation of (20 - 15) x 15% = .75
depreciation timing difference DTL
(iii) Interest to No timing Not Not applicable
financial difference applicable
institutions
(iv) Disallowances, Timing Reversal of ` 1.05 lakh  15%
as per IT Act, difference DTA = ` .158* lakh
of earlier years
(v) Donation to Permanent Not Not applicable
private trusts difference applicable
*Alternatively, may be rounded off as ` .157 lakh or 0.1575.
(d) As per AS 17 ‘Segment Reporting’, a business segment or geographical segment should
be identified as a reportable segment if:
Its revenue from sales to external customers and from other transactions with other
segments is 10% or more of the total revenue- external and internal of all segments; or


If it relates to the previous year then it can be considered as a prior period item.

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 PAPER – 5 : ADVANCED ACCOUNTING 5

Its segment assets are 10% or more of the total assets of all segments.
If the total external revenue attributable to reportable segments constitutes less than 75%
of total enterprise revenue, additional segments should be identified as reportable
segments even if they do not meet the 10% thresholds until at least 75% of total enterprise
revenue is included in reportable segments. This is not applicable in the given case. In
the given case 75% of External Revenue is ` 10,500 Lakhs (` 14,000 × 75%) and the total
External Revenue from Reportable segments is ` 12,300 Lakhs. So, no need to add
Reportable segments.
On the basis of turnover criteria segment Fan is reportable segment as its sales are more
than 1,850 lakhs (10% of ` 18,500 lakhs). Moreover, total external revenue attributable to
reportable segment is also more than 75% of the total enterprise revenue.
On the basis of asset criteria, Fan and Light are reportable segments as their assets are
more than 4,450 lakhs (10% of ` 44,500 lakhs).
Question 2
Following is the Balance Sheet of Tourma Limited as at 31 st March,2023:

Particulars Notes ` in lakhs

Equity and Liabilities
1. Shareholders’ funds
A. Share Capital 1 24.00
B. Reserves and Surplus 2 (9.10)
2. Non-current liabilities
A. Long-term borrowings 3 3.20
3. Current liabilities
A. Trade Payables 1.15
B. Short Term Borrowings – Bank Overdraft 1.40
C. Other current liabilities 4 0.32
D. Short term provisions 5 0.42
Total 21.39
Assets
1. Non-current assets
A. Property, Plant and Equipment 6 7.80
B. Intangible Assets 7 1.70
C. Non-Current Investments 8 1.80

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2. Current Assets
A. Inventory 5.12
B. Trade receivables 4.32
C. Cash and cash equivalents 0.65
Total 21.39
Notes to Accounts:
` in lakhs
1 Share Capital
Equity share capital
16,000 Equity Shares of ` 100 each 16.00
8,000 6% Preference Shares of ` 100 each 8.00
24.00
2 Reserves and Surplus
Debit balance of Profit and loss Account (9.10)
(9.10)
3 Long-term borrowings
3,200 10% Debentures 3.20
3.20
4 Other current liabilities
Interest payable on debentures 0.32
0.32
5 Short term provisions
Provision for taxation 0.42
0.42
6 Property, Plant and Equipment
Plant & Machinery 5.00
Furniture & Fixture 2.80
7.80
7 Intangible Assets
Patents & Copyrights 1.70
1.70
8 Non-current Investments
Investments (Market Value ` 1,10,000) 1.80
1.80

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 PAPER – 5 : ADVANCED ACCOUNTING 7

As on 1st April,2023, the following scheme of reconstruction was finalized for which necessary
resolution was passed and approvals were obtained from appropriate authorities. Accordingly,
it was decided that:
(i) Each equity share is to be sub-divided into ten fully paid-up equity shares of ` 10 each.
After sub-division, each shareholder shall surrender to the company 40 % of his holding,
for the purpose of reissue to trade payables as necessary.
(ii) Preference shareholders would give up 30% of their capital and 12% Debentures (face
value ` 100 each) shall be issued to them for balance holdings.
(iii) The company would issue additional 12% Debentures (face value ` 100 each) for
` 4,00,000 for meeting its working capital requirement and final settlement of Bank
Overdraft at 90% of the amount.
(iv) Existing debenture holders would accept Furniture & Fixture in full settlement of their dues.
(v) Trade payables claim shall be reduced to 70%, it is to be settled by the issue of equity
shares of ` 10 each out of shares surrendered.
(vi) The shares surrendered and not re-issued shall be cancelled.
(vii) The taxation liability is to be settled at 50,000.
(viii) Investments value to be reduced to market price.
(ix) Balance of profit and loss account is to be written off.
(x) The value of inventories is to be increased by ` 32,000 and provision for Doubtful Debts is
to be created at 5% of Trade Receivables.
You are required to:
(i) Pass necessary journal entries in the books of account of Tourma Limited.
(ii) Prepare Reconstruction Account, and
(iii) Prepare Balance Sheet of the company after internal reconstruction. (20 Marks)
Answer
Journal Entries in the books of Tourma Ltd.
Dr. Cr.
` In lakhs ` In lakhs
Equity Share Capital (` 100) A/c Dr. 16.00
To Share Surrender A/c 6.40
To Equity Share Capital (` 10) A/c 9.60
(Subdivision of 16,000 equity shares of ` 100 each into
1,60,000 equity shares of ` 10 each and surrender of

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 8 INTERMEDIATE EXAMINATION: NOVEMBER, 2023

64,000 of such subdivided shares as per capital reduction

scheme)
Preference Share Capital (` 100) A/c Dr. 8.00
To 12% Debentures A/c Dr. 5.60
To Reconstruction (` 100) A/c 2.40
(12% Debenture issued to Preference Shareholders and
30% of the capital foregone by them)
Bank A/c Dr. 4.00
To 12% Debentures (` 100) A/c 4.00
(Being 12% debentures issued)
Bank Overdraft A/c Dr. 1.40
To Bank A/c 1.26
To Reconstruction A/c 0.14
(Being bank overdraft amount paid)
10% Debentures A/c Dr. 3.20
Interest payable A/c Dr. 0.32
To Debenture holders A/c 3.52
(Being Interest payable on the 10% debentures credited to
debenture holders A/c)
10% Debentures A/c Dr. 3.52
To Furniture & fixtures A/c 2.80
To Reconstruction A/c 0.72
Trade payables A/c Dr. 1.15
To Reconstruction A/c 1.15
(Transferred claims of the trade payables to reconstruction
account, 70% of which is being clear reduction and equity
shares are being issued in consideration of the balance)
Share Surrender A/c 6.40
To Equity Share Capital A/c 0.805
To Reconstruction A/c 5.595
(Issued equity shares to discharge the claims of the trade
payables respectively as per scheme and the balance in
share surrender account is being transferred to
reconstruction account)

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 PAPER – 5 : ADVANCED ACCOUNTING 9

Provision for Taxation A/c Dr. 0.42

Reconstruction A/c Dr. 0.08
To Liability for taxation A/c 0.50
(Being conversion of the provision for taxation into liability
for taxation.)
Liability for taxation A/c 0.50
To Cash/Bank A/c 0.50
(Being taxation liability settled)
Reconstruction A/c Dr. 0.70
To Investment A/c 0.70
(Being investments’ value reduce to market price)
Inventory A/c Dr. 0.32
To Reconstruction A/c Dr. 0.104
To Provision for doubtful debts (4,32,000 x 5%) 0.216
(Being inventory revalued and provision for doubtful debts
created)
Reconstruction A/c Dr. 9.329
To Profit and Loss A/c 9.10
To Capital Reserve A/c 0.229
(Adjusted debit balance of profit and loss account against
the reconstruction account and the balance in the latter is
being transferred to capital reserve)
Balance Sheet of Tourma Limited (and reduced) as at...
Particulars Note No. ` In lakhs
I. Equity and Liabilities
(1) Shareholder's Funds
(a) Share Capital 1 10.405
(b) Reserves and Surplus 2 0.229
(2) Non-Current Liabilities
(a) Long-term borrowings 3 9.60
(3) Current Liabilities
Total 20.234

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 10 INTERMEDIATE EXAMINATION: NOVEMBER, 2023

II. Assets
(1) Non-current assets
(a) Property, plant and equipment 4 5.00
(b) Intangible assets 5 1.70
(c) Non-current investments 6 1.10

(2) Current assets

(a) Inventories 7 5.44
(b) Trade receivables 8 4.104
(c) Cash and cash equivalents (W.N) 2.89
Total 20.234
Notes to Accounts
` In lakhs
1. Share Capital
Equity Share Capital
Issued Capital: 10.405 Equity Shares of ` 10 each 10.405
(9.6 + 0.805)
(Of the above shares all are allotted as fully paid up
pursuant to capital reduction scheme by conversion of
equity shares without payment being received in cash)
2. Reserve and Surplus
Capital Reserve 0.229
3. Long-term borrowings
Unsecured Loans
12% Debentures (5.60 + 4) 9.60
4. Property, plant and Equipment
Plant & Machinery 5.00
5 Intangible assets
Patents & copyrights 1.70
6. Non-Current Investments
Investments 1.10
7. Inventory 5.12
Add: Appreciation under scheme of Reconstruction 0.32 5.44

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 PAPER – 5 : ADVANCED ACCOUNTING 11

8 Trade Receivables 4.32

Less: Provision for doubtful debts 0.216 4.104

Question 3
(a) GB Limited acquired 80% of equity shares of TB Limited on 1 st April,2016 at a cost of `
58,00,000 when TB Limited had an Equity share capital of ` 50,00,000 and Reserves and
Surplus of ` 4,64,000.
The following information is provided:
Year Profit /(Loss) of TB Limited (`)
2016-17 (14,50,000)
2017-18 (23,20,000)
2018-19 (29,00,000)
2019-20 (6,96,000)
2020-21 1,90,000
2021-22 6,80,000
2022-23 12,70,000
You are required to calculate the minority interests and cost of control at the end of each
year for the purpose of consolidation.
(b) The Reserve Bank of India (RBI) has introduced a revised regulatory framework for Non -
Banking Financial Companies (NBFCs), effective from October 01, 2022, named ‘Scale
Based Regulation’ (SBR) to regulate the NBFCs based on their size, activity, complexity
and interconnectedness within the financial sector. The regulatory structure for NBFCs
shall comprise of four layers based on their size, activity, and perceived risks. Briefly
explain the four layers. (15 + 5 = 20 Marks)
Answer
(a)
Year Profit / Minority Additional Minority's Share of Cost of
(Loss) Interest Consolidated losses borne by GB Control
(20%) P&L Ltd.
(Dr.) Cr.
` Balance
At the time of -
acquisition in 10,92,800
2016 -
(W.N.)

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 12 INTERMEDIATE EXAMINATION: NOVEMBER, 2023

2016-17 (14,50,000) (2,90,000) (11,60,000) 14,28,800

(W.N.)
Balance 8,02,800
2017-18 (23,20,000) (4,64,000) (18,56,000) 14,28,800
Balance 3,38,800
2018-19 (29,00,000) (5,80,000) (23,20,000) 14,28,800
(2,41,200)
Loss of 2,41,200 (2,41,200) 2,41,200 2,41,200
minority
borne by
Holding Co.
Balance Nil (25,61,200)
2019-20 (6,96,000) (1,39,200) (5,56,800) 14,28,800
Loss of
minority 1,39,200 (1,39,200) 1,39,200 3,80,400
borne by
Holding Co.
Balance Nil (6,96,000)
2020-21 1,90,000 38,000 1,52,000 14,28,800
Profit share (38,000) 38,000 (38,000) 3,42,400
of minority
adjusted
against
losses of
minority
absorbed by
Holding Co.
Balance Nil 1,90,000
2021-22 6,80,000 1,36,000 5,44,000
Profit share (1,36,000) 1,36,000 (1,36,000 2,06,400 14,28,800
of minority )
adjusted
against
losses of
minority
absorbed by
Holding Co.
Balance Nil 6,80,000
2022-23 12,70,000 2,54,000 10,16,000 (2,06,400 Nil 14,28,800
)
(2,06,400) 2,06,400
Balance 47,600 12,22,400

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 PAPER – 5 : ADVANCED ACCOUNTING 13

Working Note:
Calculation of Minority interest and Cost of control on 1.4.2016
Share of Holding Co. Minority Interest
100% 80% 20%
(`) (`) (`)
Share Capital 50,00,000 40,00,000 10,00,000
Reserve 4,64,000 3,71,200 92,800
43,71,200 10,92,800
Less: Cost of investment (58,00,000)
Goodwill 14,28,800
(b) Details of NBFCs populating the various layers is mentioned below:
Base Layer
The Base Layer shall comprise of (a) non-deposit taking NBFCs below the asset size of
` 1000 crore and (b) NBFCs undertaking the following activities- (i) NBFC-Peer to Peer
Lending Platform (NBFC-P2P), (ii) NBFC-Account Aggregator (NBFC-AA), (iii) Non-
Operative Financial Holding Company (NOFHC) and (iv) NBFCs not availing public funds
and not having any customer interface.
Middle Layer
The Middle Layer shall consist of (a) all deposit taking NBFCs (NBFC-Ds), irrespective of
asset size, (b) non-deposit taking NBFCs with asset size of `1000 crore and above and
(c) NBFCs undertaking the following activities (i) Standalone Primary Dealers (SPDs), (ii)
Infrastructure Debt Fund - Non-Banking Financial Companies (IDF-NBFCs), (iii) Core
Investment Companies (CICs), (iv) Housing Finance Companies (HFCs) and (v)
Infrastructure Finance Companies (NBFC-IFCs).
Upper Layer
The Upper Layer shall comprise of those NBFCs which are specifically identified by the
Reserve Bank as warranting enhanced regulatory requirement based on a set of
parameters and scoring methodology as provided in the Appendix to this circular. The top
ten eligible NBFCs in terms of their asset size shall always reside in the upper layer,
irrespective of any other factor.
Top Layer
The Top Layer will ideally remain empty. This layer can get populated if the Reserve Bank
is of the opinion that there is a substantial increase in the potential systemic risk from
specific NBFCs in the Upper Layer. Such NBFCs shall move to the Top Layer from the
Upper Layer.

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 14 INTERMEDIATE EXAMINATION: NOVEMBER, 2023

Question 4
(a) X, Y and Z are partners in a firm, sharing profit and losses in the ratio of 3:2:1 respectively.
Due to extreme competition, it was decided to dissolve the partnership on 31 st December,
2022 on which date the Balance sheet was as follows:
Liabilities ` Assets `
Capital Accounts: Machinery 3,08,000
X 2,26,200 Furniture and Fittings 51,600
Y 70,800 Investments 10,800
Z 63,000 3,60,000 Stock 1,95,400
Current Accounts: Debtors 1,12,800
X 52,800 Bank 59,400
Z 12,000 64,800 Current Account -Y 36,000
Reserves 2,16,000
Loan Account Z 30,000
Creditors 1,03,200
7,74,000 7,74,000
The realisation of assets is spread over the next few months as follows:
2023 `
February Debtors 1,03,800
March Machinery 2,79,000
April Furniture etc. 36,000
May Y agreed to take over Investments at 12,600
June Stock 1,92,000
Other information:
(i) Dissolution expenses, originally provided were ` 27,000, but actually amounted to
` 19,200 and were paid on 30 th April.
(ii) The creditors were to be settled for ` 1,00,800.
(iii) The partners decided that after creditor settlement, all cash received should be
distributed to partners at the end of each month in the most equitable manner.
You are required to prepare a statement of actual cash distribution as it is received
following the "maximum lose method".

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 PAPER – 5 : ADVANCED ACCOUNTING 15

(b) Briefly explain the following terms in context to Limited Liability Partnership Act, 2008:
(i) Foreign Limited Liability Partnership
(ii) Business
(iii) Designated Partner
(iv) Resident in India for the purpose of Section 7 of LLP Act, 2008 (15 + 5 = 20 Marks)
Answer
(a) Statement of Distribution of Cash by ‘Maximum Loss Method’
Creditors Z ’s Loan X Y Z
` ` ` ` `
Feb: Balance due 1,03,200 30,000 3,87,000 1,06,800 1,11,000
Cash available 59,400
Collection from debtors 1,03,800
1,63,200
Less: prov for expenses 27,000
1,36,200
Creditors & Loan paid
(1,00,800 + 30,000) 1,30,800 (1,00,800) (30,000)
2,400 -
Discount written off (2,400)
Available for X, Y & Z 5,400 -
Maximum possible loss
(6,04,800-5,400) = 5,99,400
In ratio of 3:2:1 (2,99,700) (1,99,800) (99,900)
87,300 (93,000) 11,100
Adjustment for Y’s deficiency in ratio of
2,26,200:63,000 (72,741) 93,000 (20,259)
14,559 - (9,159)
Adjustment for Z’s deficiency (9,159) - 9,159
Cash paid to X 5,400
Balance due 3,81,600 1,06,800 1,11,000
March
Cash available ` 2,79,000
Maximum possible loss
` 5,99,400 – ` 2,79,000
= ` 3,20,400 in ratio of 3:2:1 (1,60,200) (1,06,800) (53,400)
Cash paid 2,21,400 - 57,600

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 16 INTERMEDIATE EXAMINATION: NOVEMBER, 2023

Balance 1,60,200 1,06,800 53,400

April
36,000 +7,800 (saving in expenses)
= 43,800
Maximum possible loss
` 3,20,400-43,800 = 2,76,600 in ratio of (1,38,300) (92,200) (46,100)
3:2:1
Cash paid 21,900 14,600 7,300
Balance due 1,38,300 92,200 46,100
May
Balance of capital account 2,76,600 1,38,300 92,200 46,100
less Investment given to Y 12,600 12,600
June 2,64,000
Balance of capital account 2,64,000 1,38,300 79,600 46,100
Amount realized 1,92,000
Maximum possible loss 72,000 36,000 24,000 12,000
Amount paid 1,02,300 55,600 34,100

*Partners’ capital balances are after adjusting reserves and current A/c balance.
Working Note:
Statement showing the cash available for distribution:
February ` 59,400 + 1,03,800 - 27,000 = ` 1,36,200
March ` 2,79,000
April ` 36,000 + 7,800 = 43,800
May Nil
June ` 1,92,000
(b) (i) "Foreign limited liability partnership" means a limited liability partnership formed,
incorporated, or registered outside India which establishes a place of business within
India.
(ii) "Business" includes every trade, profession, service, and occupation and occupation
except any activity which the Central Government may, by notification, exclude.
(iii) "Designated partner”: Every Limited liability partnership should have at least two
designated partners who are individuals and at least one to them should be a resident
in India. Provided that in case of a limited liability partnership in which all the partners
are bodies corporate or in which one or more partners are individuals and bodies

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 PAPER – 5 : ADVANCED ACCOUNTING 17

corporate, at least two individuals who are partners of such limited liability partnership
or nominees of such body corporate will act as designated partners.
(iv) "Resident in India": For the purposes of this section, the term "resident in India"
means a person who has stayed in India for a period of not less than 120 days during
the immediately preceding one year.
Question 5
(a) Citrine Limited went into voluntary liquidation on 31 stMarch, 2023. The following balances
were extracted from its books as on that date:

`
Property, Plant and Equipment 5,15,000
Inventory 4,50,000
Trade receivables 1,85,000
Bank balance 90,000
Profit & Loss A/c (Dr. balance) 3,61,000
Trade payables 2,75,000
Outstanding Expenses (including Bank interest) 76,000
7% Bank loan (secured by floating charge) 3,60,000
2,500 12% cumulative Preference shares of ` 100
each, fully paid 2,50,000
4,000 Equity shares of ` 100 each, fully paid 4,00,000
4,000 Equity shares of ` 100 each, ` 60 paid up 2,40,000

Other information:
(i) On 1st April, 2023 the liquidator sold Citrine Limited's Property, Plant and Equipment
for ` 3,98,200 and Inventory for ` 4,10,100 and the consideration satisfied as
` 7,55,800 in cash and the balance in 8% Debentures of ` 100 each of the purchasing
company issued to the liquidator at a premium of 5%.
(ii) Trade Receivables were realized for ` 1,41,700.
(iii) The Bank loan was fully paid on 30 th April, 2023 along with interest from
1st October, 2022.
(iv) Trade payables were paid after 4% discount and outstanding expenses excluding
bank interest were settled for ` 24,000.
(v) Six month's interest on debentures was received on 30 th September 2023.

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 18 INTERMEDIATE EXAMINATION: NOVEMBER, 2023

(vi) Liquidation expenses amounting to ` 32,800 and liquidator's remuneration of 2% on

assets realized except cash were paid on 30 th September, 2023.
(vii) Preference Dividends were in arrears for 2 years.
(viii) Preference shareholders were paid out in cash.
(ix) The debentures of Citrine Limited and the balance of cash were distributed rateably
among equity shareholders.
(x) Calls on partly paid shares were made but the amount due on 500 shares was found
to be irrecoverable.
You are required to prepare the Liquidator's Statement of Account showing the distribution.
(b) Adriti Bank Limited provides you with the following information as on 31 st March, 2023:

` in Lakhs
Cash Credit 1836
Term Loans 1532
Fixed Deposits 581
Current Accounts 1234
Saving Accounts 1852
Bill Discounted 835

Additional Information:
(i) Cash Credits include a doubtful account of ` 15 lakhs (including interest of ` 1.5
lakhs)
(ii) 25% of Cash Credits are unsecured, 50% of Term Loans are secured by Government
Guarantees, and other portion is secured by Tangible Assets.
(iii) Current Account includes accounts overdrawn to the extent of ` 136 lakhs.
(iv) Required Cash Reserve Ratio is 4% and Liquid Reserve Ratio is 25% of demand and
time liabilities.
You are required to:
(i) Show the above Ledger balances in the relevant schedules in the Financial
Statements of the Adriti Bank Limited; and
(ii) Calculate the amount of Cash Reserve and Statutory Liquid Reserve required to be
maintained. (10 + 10 = 20 Marks)

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 PAPER – 5 : ADVANCED ACCOUNTING 19

Answer
(a) Citrine Processors Limited
Liquidator’s Statement of Account
Receipts ` Payments `
To Assets realized - By Liquidation expenses 32,800
Bank balance 90,000 By Liquidator’s 19,000
Remuneration (W.N.1)
Other assets: By 7% Bank Loan 3,60,000
PPE and Inventory 7,55,800 Interest on Loan 14,700 3,74,700
(7 months)
Trade receivables 1,41,700 8,97,500 By Trade payables 2,64,000
(2,75,000X96%)
To 8% Debentures 52,500 By Outstanding Expenses 24,000
By Preference
shareholders:
To Interest on 8% 2,000 Preference capital 2,50,000
Debentures Arrear of Dividend 60,000 3,10,000
(6 months)
To Cash Equity shareholders @
` 21 on 4,000 shares
To Call on equity 66,500 By 8% Debentures 52,500
shareholders Cash 31,500 84,000
(3,500X ` 19)

Working Notes:
`
1. Assets sold including stock in trade (3,98,200+4,10,100) 8,08,300
Consideration received:
By way of Cash 7,55,800
By ` 50,000, 8% Debentures (at a premium of 5%) 52,500
2. Disbursement to Shareholders
Preference Shareholders 2,50,000
Equity Shareholders:
(By way of 8% Debentures, i.e., ` 7,55,800 & the remaining amount
in cash `)
(3) Liquidator’s remuneration 9,50,000 × 2/100 = 19,000
(4) Return per equity share

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 20 INTERMEDIATE EXAMINATION: NOVEMBER, 2023

`
Deficit before paying equity shareholders (35,000)
(` 10,24,500 – ` 9,89,500)
Add: Notional calls 3,500 shares (4,000-500) × ` 40 1,40,000
Available for equity shareholders 1,05,000
Total Available for equity shareholders
Balance cash 1,05,000
8% Debentures 52,500
1,57,500

Number of shares deemed fully paid up 7,500

shares
Refund per share (1,57,500 /7,500) ` 21
Loss per share (100-21) ` 79
Call on partly paid shares ` 19 (79-60) on 3,500 shares ` 19
(b) Relevant Schedules (forming part of the Balance sheet) of Adriti Bank
Schedule 3: Deposits
` in lacs
A Demand deposits (1,234 – 136) 1,098
B Saving bank deposits 1,852
C Term deposits (Fixed Deposits) 581
3,531

Schedule 9: Advances
` in lacs
A (i) Bills discounted and purchased 835
(ii) Cash credits and overdrafts (1,836 + 136) 1,972
(iii) Term loans 1532
4339
(i) Secured by tangible assets (bal. fig.) 3,114
(ii) Secured by Bank/Government guarantees (1532 x 50%) 766
(iii) Unsecured (1836 x 25%) 459
4,339

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 PAPER – 5 : ADVANCED ACCOUNTING 21

Schedule 5: Other Liabilities & Provisions

` in lacs
Others (Provision for doubtful debts) 1.5
Profit and Loss Account (an extract)
` in lacs
Less: Provision for doubtful debts* 1.5
Total Demand & Time Liability 3,531
Cash Reserve 4% 141.25
SLR 25% 882.75
Note: The overdrawn extent in Current Accounts will be shown as Overdrafts.
*Note: It is assumed that the cash credit has been in ‘doubtful’ category for more than three
years, hence provision made at 100%.
Question 6
Answer any four of the following:
(a) Raman Limited and Naman Limited decided to amalgamate and form a new company Rana
Limited as on 31 st March, 2023 and provided you the following information:
Particulars As on 31st March,2023 Revalued Figures
for Amalgamation
Raman Naman Raman Naman
Limited Limited Limited Limited
(` ) (` ) (` ) (` )
Equity shares of ` 10 each 6,72,000 2,52,000
10% Preference Shares of ` 100
each 3,36,000 1,68,000
Reserves and Surplus 5,44,240 2,65,480
Trade Payables 84,000 1,76,000 80,640 1,68,960
Property, Plant and Equipment 7,69,000 4,36,400 10,58,100 5,20,100
Goodwill 1,62,000 - 1,62,000 -
Inventories 1,89,000 1,17,600 2,78,620 2,06,780
Trade Receivables 2,81,000 1,47,000 2,47,140 1,38,180
Cash & Cash Equivalents 2,35,240 1,60,480

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 22 INTERMEDIATE EXAMINATION: NOVEMBER, 2023

The purchase consideration is to be satisfied as follows:

(i) By issue of 4 Preference Shares of ` 100 each in Rana Limited @ ` 85 paid up and
at a premium of ` 30 per share for every 3 preference shares held in both the
companies.
(ii) By issue of 5 Equity shares of ` 10 each in Rana Limited @ ` 7 paid up and at a
premium of ` 5 per share for every 3 equity shares held in both the companies.
(iii) In addition, necessary cash should be paid to equity shareholders of both the
companies as required to adjust the rights of shareholders of both the companies in
accordance with the intrinsic value of the shares of both the companies.
You are required to compute the purchase consideration for both the companies.
(b) The following is the extract of Balance Sheet of Yellow Limited as on 31.03.2023:
`
4,00,000 Equity shares of ` 10 each 40,00,000
General Reserve 48,00,000
Profit & Loss Account 10,00,000
Securities Premium 18,00,000
Secured Loans 60,00,000
Unsecured Loans 32,00,000
Current Liabilities 28,00,000
2,36,00,000
Property, Plant and Equipment 90,00,000
Investments 18,00,000
Current Assets 1,28,00,000
2,36,00,000
The company intends to buy-back 80,000 equity shares of ` 10 each at a premium of
150%.
You are required to state whether the company can buy back equity shares.
(c) Rose Limited grants 3,000 stock options to its employees on 1.4.2020 at ` 50.
The vesting period is two and a half years. The maximum exercise period is one year.
Market price on that date is ` 80. Fair value per option is ` 30.
All the options were exercised on 30.9.2023.
You are required to pass the necessary journal entries if the face value of equity share is
` 10 per share.

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 PAPER – 5 : ADVANCED ACCOUNTING 23

(d) Analyse the disclosure and presentation requirements of AS 24 for Discontinuing

Operations (any five).
(e) Panna Limited purchased software from Agate Limited for a period of 5 years and
capitalized the cost. It provided you the following information:
Cost of software ` 57,60,000.
Expected Life cycle of the software 5 years
The software was amortised at ` 6,40,000 per annum in first three years based on
economic benefits derived from the software. After three years, it was found that the
software may be used for another 5 years from then. So, Panna Limited got it renewed
after expiry of five years for 3 more years.
The net cash flows from the software during these 5 years were expected to be as follows:
Year 1 ` 23,04,000
Year 2 ` 29,44,000
Year 3 ` 28,16,000
Year 4 ` 25,60,000
Year 5 ` 21,76,000
You are required to calculate the amortization cost of the software for each of the years.
(5 Marks x 4 Parts = 20 Marks)
Answer
(a) Purchase consideration
Raman Ltd. Naman Ltd.
` `
Payable to preference shareholders:
Preference shares at ` 115 per share 5,15,200 2,57,600
4  4
(3,360× 3)  1,680  
 3
Equity Shares at ` 12 per share 13,44,000 5,04,000
5  5
(67,200× 3)  25,200  
 3
Cash [See W.N.] 41,260 94,980
19,00,460 8,56,580

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 24 INTERMEDIATE EXAMINATION: NOVEMBER, 2023

Working note:
Raman Ltd. Naman Ltd.
` `
Goodwill 1,62,000
PPE 10,58,100 5,20,100
Trade receivables 2,47,140 1,38,180
Inventory 2,78,620 2,06,780
Cash & Cash Equivalent 2,35,240 1,60,480
19,81,100 10,25,540
Less: Trade payables (80,640) (1,68,960)
19,00,460 8,56,580
Payable in shares 18,59,200 7,61,600
Payable in cash 41,260 94,980
(b) Determination of Buy-back of maximum no. of shares as per the Companies Act,
2013
1. Shares Outstanding Test
Particulars (Shares)
Number of shares outstanding 4,00,000
25% of the shares outstanding 1,00,000
2. Resources Test: Maximum permitted limit 25% of Equity paid up capital + Free
Reserves
Particulars
Paid up capital (`) 40,00,000
Free reserves (`) (48,00,000 + 18,00,000 + 10,00,000) 76,00,000
Shareholders’ funds (`) 1,16,00,000
25% of Shareholders fund (`) 29,00,000
Buy-back price per share ` 25
Number of shares that can be bought back (shares) 1,16,000
Actual Number of shares for buy-back 80,000
3. Debt Equity Ratio Test: Loans cannot be in excess of twice the Equity Funds
post Buy-Back

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 PAPER – 5 : ADVANCED ACCOUNTING 25

Debt Equity ratio of the company should not exceed 2:1 after such buy-back. In this
case, the debt is ` 92,00,000 (60,00,000 + 32,00,000)  and equity after such buy
back will be ` 96,00,000 (1,16,00,000 – 20,00,000). Thus, the debt equity ratio is
0.96:1, which is less than 2:1.
Company qualifies all tests for buy-back of shares and came to the conclusion that it can
buy 80,000 equity shares @ ` 25.
(c) Books of Rose Ltd.
Journal Entries

Date Particulars Debit Credit

` `
31.3.2021 Employees Compensation Expense Account Dr. 36,000
To Employees Stock Option Outstanding 36,000
Account
(Being compensation expense recognized in
respect of 3,000 options granted to employees
at fair value of ` 30 each, amortized on straight
line basis over 2½ years) (Refer WN)
Profit and Loss Account Dr. 36,000
To Employees Compensation Expense 36,000
Account
(Being employees compensation expense of the
year transferred to P&L A/c)
31.3.2022 Employees Compensation Expense Account Dr. 36,000
To Employees Stock Option Outstanding 36,000
Account
(Being compensation expense recognized in
respect of 3,000 options granted to employees
at discount of ` 30 each, amortized on straight
line basis over 2½ years) (Refer WN)


Total debt may be considered (i.e including current liability).

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 26 INTERMEDIATE EXAMINATION: NOVEMBER, 2023

Profit and Loss Account Dr. 36,000

To Employees Compensation Expense 36,000
Account
(Being employees compensation expense of the
year transferred to P&L A/c)
31.3.2023 Employees Compensation Expense Account Dr. 18,000
To Employees Stock Option Outstanding 18,000
Account
(Being balance of compensation expense
amortized ` 90,000 less ` 72,000) (Refer WN)
Profit and Loss Account Dr. 18,000
To Employees Compensation Expense 18,000
Account
(Being employees compensation expense of the
year transferred to P&L A/c)
30.9.2023 Bank Account (` 50 × 3,000) Dr. 1,50,000
To Equity Share Capital Account 30,000
To Securities Premium Account 1,20,000
(Being exercise of 3,000 options at an exercise
price of ` 50)
30.9.2023 Stock Option Outstanding A/c (` 30 x 3,000) Dr. 90,000
To Securities Premium Account 90,000
(Being the balance in the Employees Stock
Option Outstanding Account transferred to
Securities Premium A/c)

Working Notes:
1. Total employees compensation expense = 3,000 x ` 30 = ` 90,000
2. Employees compensation expense has been written off during 2½ years on straight
line basis as under:
I year = ` 36,000 (for full year)
II year = ` 36,000 (for full year)
III year = ` 18,000 (for half year)

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 PAPER – 5 : ADVANCED ACCOUNTING 27

(d) An enterprise should include the following information relating to a discontinuing operation
in its financial statements beginning with the financial statements for the period in which
the initial disclosure event occurs:
a. A description of the discontinuing operation(s).
b. The business or geographical segment(s) in which it is reported as per AS 17 .
c. The date and nature of the initial disclosure event.
d. The date or period in which the discontinuance is expected to be completed if known
or determinable.
e. The carrying amounts, as of the balance sheet date, of the total assets to be disposed
of and the total liabilities to be settled.
f. The amounts of revenue and expenses in respect of the ordinary activities attributable
to the discontinuing operation during the current financial reporting period .
g. The amount of pre-tax profit or loss from ordinary activities attributable to the
discontinuing operation during the current financial reporting period, and the income
tax expense related thereto.
h. The amounts of net cash flows attributable to the operating, investing, and financing
activities of the discontinuing operation during the current financial reporting period .
(e) Panna Limited amortised ` 6,40,000 per annum for the first three years i.e.
` 19,20,000. The remaining carrying cost can be amortised during next 5 years on the
basis of net cash flows arising from the sale of the product. The amortisation may be found
as follows:
Year Net cash flows ` Amortisation Ratio Amortisation Amount `
I - 0.1111 6,40,000
II 0.1111 6,40,000
III - 0.1111 6,40,000
IV 23,04,000 0.180 691200
V 29,44,000 0.230 883200
VI 28,16,000 0.220 844800
VII 25,60,000 0.200 768000
IX 21,76,000 0.170 652800
Total 1,28,00,000 1.000 57,60,000
It may be seen from above that from fourth year onwards, the balance of carrying amount
i.e., ` 38,40,000 has been amortised in the ratio of net cash flows arising from the product
of Panna Ltd.

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 PAPER – 5: ADVANCED ACCOUNTING
Question No.1 is compulsory.
Candidates are also required to answer any four questions from the remaining five questions.
Working notes should form part of the respective answers.
Wherever necessary, candidates are permitted to make suitable assumptions which should be
disclosed by way of a note.
Question 1
(a) Fisher Construction Co. obtained a contract for construction of a commercial complex. The
following details are available in records of a company for the year ended 31st March, 2023:
Particulars Amount in lakhs
Total contract price 24000
Work certified 12500
Work not certified 2500
Estimated further cost to completion of work 17500
Progress payment received 11000
Progress payment to be received 3000
Applying the provisions of AS 7, you are required to compute:
(i) Profit / Loss for the year ended 31 stMarch, 2023.
(ii) Contract work in progress at the end of financial year 2022-2023.
(iii) Revenue to be recognized out of the total contract value.
(iv) Amount due from/ to customers as at the year end. (5 Marks)
(b) Toy Ltd. is engaged in manufacturing toys. They provide you the following information as
on 31st March, 2023:
(i) On 15thJanuary, 2023, Toys worth ` 5,00,000 were sent to A Ltd. on consignment
basis of which 25% Toys unsold were lying with A Ltd. as on 31 stMarch, 2023,
(ii) Toys worth ` 2,25,000 were sold to S Ltd. on 25 thMarch, 2023 but at the request of S
Ltd., these were delivered on 15 thApril, 2023.
(iii) On 1st November, 2022, toys worth ` 3,50,000 were sold on approval basis. The
period of approval was 4 months after which they were considered sold. Buyer sent
approval for 75% goods upto 31 stDecember, 2022 and no approval or disapproval
received for the remaining goods till 31stMarch, 2023.
You are required to advise the accountant of Toy Ltd., the amount to be recognised as
revenue in above cases in the context of AS-9. (5 Marks)

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 2 INTERMEDIATE EXAMINATION: MAY, 2023

(c) Answer the following with respect to AS-18:

(i) ABC Ltd. sold goods of ` 2,00,000 to its associate company for the 1 stquarter ending
30.06.2022. After that the related party relationship ceased to exist. However, goods
were supplied to any other ordinary customer. Decide whether transactions of the
entire year have to be disclosed as related party transaction.
(ii) If the majority of directors of Arjun Ltd. constitute the majority of the Board of another
Company Bheem Ltd. in their individual capacity as professionals (and not by virtue
of their being Directors in Arjun Ltd.). Are both the companies related?
(iii) Asha Ltd. sells all the manufactured furniture of ` 1,00,00,000 to Sasha Ltd, as per
agreement. Sasha Ltd. is the only customer to Asha Ltd. In the financial statements,
Asha Ltd. wants to present Sasha company as a related party. Comment on the
disclosure requirement. (5 Marks)
(d) The Accountant of X. Ltd. provides the following data regarding its five segments:
Particulars A B C D E Total
(` in Crore)
Segment Assets 50 20 15 10 5 100
Segment Results (85) 10 10 (15) 5 (75)
Segment Revenue 250 50 40 60 30 430
The accountant is of the opinion that segment 'A' alone should be reported. Is he justified
in his view? Examine his opinion in the light of provisions of AS-17 Segment Reporting.
(5 Marks)
Answer
(a)
(` In lakhs)
(i) Profit or Loss for the year ended 31.03.2023 32,500
Total cost of construction (12,500 + 2,500 + 17,500) (24,000)
Less: Total contract price 8,500
Total foreseeable loss to be recognized as expense
According AS 7, when it is probable that total contract costs will exceed total contract
revenue; the expected loss should be recognized as an expense immediately.
(` in lakhs)
(ii) Contract work-in-progress i.e. cost incurred to date are ` 15,000 lakhs
Work certified 12,500
Work not certified 2,500
Contract work in progress at the end of 2022-23 15,000

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 PAPER – 5 : ADVANCED ACCOUNTING 3

(iii) Proportion of total contract value recognized as revenue:

For this, cost incurred till 31.03.2023 is 46.154% (15,000/32,500  100) to total costs
of construction.
Therefore, Proportion of total contract value recognized as revenue is
46.154% of ` 24,000 lakhs = ` 11,076.96 lakhs
Or 46.15% (Approx.) of ` 24,000 lakhs = ` 11,076 lakhs
(iv) Amount due from/ to customers =
(Contract costs + Recognised profits – Recognised Losses)
– (Progress payments received + Progress payments to be received)
= (15,000 + Nil – 8,500) – (11,000 + 3,000) ` in lakhs
= [6,500 – 14,000] ` in lakhs
Amount due to customers = ` 7,500 lakhs
(b) As per AS 9 “Revenue Recognition”, in a transaction involving the sale of goods,
performance should be regarded as being achieved when the following conditions are
fulfilled:
(i) the seller of goods has transferred to the buyer the property in the goods for a price
or all significant risks and rewards of ownership have been transferred to the buyer
and the seller retains no effective control of the goods transferred to a degree usually
associated with ownership; and
(ii) no significant uncertainty exists regarding the amount of the consideration that will be
derived from the sale of the goods.
Case (i) 25% toys lying unsold with consignee should be treated as closing inventory and
sales should not be recognized for ` 1,25,000 (25% of ` 5,00,000). In case of consignment
sale revenue should not be recognized until the goods are sold to a third party.
Sales for ` 3,75,000 (75% of ` 5,00,000) should be recognized for the year ended
31st March, 2023.
Case (ii) The sale is complete but delivery has been postponed at buyer’s request. The
entity should recognize the entire sale of ` 2,25,000 for the year ended 31 st March, 2023.
Case (iii) In case of goods sold on approval basis, revenue should not be recognized until
the goods have been formally accepted by the buyer or the buyer has done an act adopting
the transaction or the time period for rejection has elapsed or where no time has been
fixed, a reasonable time has elapsed. Therefore, revenue should be recognized for the
total sales amounting ` 3,50,000 as the time period for rejecting the goods had expired.

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 4 INTERMEDIATE EXAMINATION: MAY, 2023

(c) (i) As per AS 18, parties are considered to be related if any time during the reporting
period one party has the ability to control the other party or exercise significant
influence over the other party. Transactions of ABC Ltd. with its associate company
for the first quarter ending 30.06.2022 only are required to be disclosed as related
party transactions as the company has the ability to exercise significant influence only
till 30.6.2022.
The transactions for the period in which related party relationship did not exist need
not be reported.
(ii) In the given case, Arjun Ltd. cannot be said to control the composition of board of
directors of Bheem Ltd. as the directors have been appointed in their indivi dual
capacity as professionals and not by virtue of their being directors in Arjun Ltd.
Hence, it cannot be concluded that the companies are related merely because the
majority of the directors of one company became the majority of the directors of the
second in their individual capacity as professionals.
(iii) In the context of AS 18, a single customer, supplier, franchiser, distributor, or general
agent with whom an enterprise transacts a significant volume of business cannot be
construed as Related Party Relationship merely by virtue of the resulting economic
dependence. There is an economic dependence between the companies but no one
controls or exercise significant influence on the other.
In the given case, Asha Ltd. need not report Sasha Company as its related party in
its financial statements.
(d) As per AS 17 ‘Segment Reporting’, a business segment or geographical segment should
be identified as a reportable segment if:
➢ Its revenue from sales to external customers and from other transactions with other
segments is 10% or more of the total revenue- external and internal of all segments;
or
➢ Its segment result whether profit or loss is 10% or more of:
 The combined result of all segments in profit; or
 The combined result of all segments in loss,
whichever is greater in absolute amount; or
➢ Its segment assets are 10% or more of the total assets of all segments.
If the total external revenue attributable to reportable segments constitutes less than 75%
of total enterprise revenue, additional segments should be identified as reportable
segments even if they do not meet the 10% thresholds until 75% of total enterprise revenue
is included in reportable segments.
On the basis of revenue criteria, segments A, B and D are reportable segments.

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 PAPER – 5 : ADVANCED ACCOUNTING 5

On the basis of the result criteria, segments A, B, C and D are reportable segments (since
their results in absolute amount are 10% or more of ` 100 crore).
On the basis of asset criteria, all segments except E are reportable segments.
Since all the segments except E are covered in at least one of the above criteria. Hence,
all segments except E have to be reported upon in accordance with Accounting Standard
(AS) 17.
Hence, the opinion of chief accountant that only segment A alone should be reported, is
wrong as all segments are reportable except E.
Question 2
X Ltd. and Y Ltd. had been carrying on business independently. They agreed to amalgamate
and form a new company XY Ltd. with an authorized share capital of ` 40,00,000 divided into
` 8,00,000 equity shares of 5 each. On 31 st March, 2023 the respective information of X Ltd.
and Y Ltd. were as follows:
X Ltd. (`) Y Ltd. (`)
Share Capital 34,25,000 36,10,000
Trade Payable 59,70,000 18,02,500
Property, Plant and Equipment 58,25,000 37,40,000
Current Assets 31,45,000 15,99,500
Additional Information:
The following revalued figures of non-current and current assets are:
X Ltd. Y Ltd.
Property, Plant and Equipment 71,00,000 39,00,000
Current Assets 29,95,000 15,77,500
The debtors and creditors include 1,37,250 owed by X Ltd. to Y Ltd.
The purchase consideration is satisfied by issue of the following shares and debentures.
6,20,000 equity shares of XY Ltd. to X Ltd. and Y Ltd. in the proportion to the profitability of their
respective business based on the average net profit during the last four years which were as
follows:
X Ltd. Y Ltd.
2020 Profit 42,50,000 26,50,000
2021 Profit 44,45,760 27,60,000
2022 (Loss) / Profit (75,000) 34,00,000
2023 Profit 37,79,240 35,90,000

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 6 INTERMEDIATE EXAMINATION: MAY, 2023

7.5% debenture in XY Ltd. at par to provide an income equivalent to 4% return business as on

capital employed in their respective business as on 31 st March, 2023 after revaluation of assets.
You are required to:
(1) Compute the amount of debenture and shares to be issued to 'X' Ltd. and 'Y' Ltd.
(2) A Balance Sheet of XY Ltd. showing the position immediately after amalgamation.
(20 Marks)
Answer
(1) Computation of amount of Debentures and Shares to be issued:
(i) Average Net Profit X Ltd. Y Ltd.
` (42,50,000+44,45,760-75,000+37,79,240)/4 31,00,000
` (26,50,000+27,60,000+34,00,000+35,90,000)/4 31,00,000
(ii) Equity Shares Issued
(a) Ratio of distribution
X Ltd. : Y Ltd.
1 1
(b) Number of shares
X Ltd. : 3,10,000
Y Ltd. : 3,10,000
6,20,000
(c) Amount of shares
3,10,000 shares of ` 5 each = ` 15,50,000
3,10,000 shares of ` 5 each = ` 15,50,000
(iii)
Capital Employed (after revaluation of assets) X Ltd. (`) Y Ltd. (`)
Property, plant and equipment 71,00,000 39,00,000
Current Assets 29,95,000 15,77,500
1,00,95,000 54,77,500
Less: Current Liabilities (59,70,000) (18,02,500)
41,25,000 36,75,000

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 PAPER – 5 : ADVANCED ACCOUNTING 7

(iv) Debentures Issued

X Ltd. (`) Y Ltd. (`)
4% Return on capital employed 1,65,000 1,47,000
7.5% Debentures to be issued to 100 100
provide equivalent income: 1,65,000 × 1,47,000 ×
7.5 7.5
22,00,000 19,60,000
Balance Sheet of XY Ltd.
As at 31 st March 2023 (after amalgamation)
Particulars Note No `
I. Equity and Liabilities
(1) Shareholders’ Funds
(a) Share Capital 1 31,00,000
(b) Reserves and Surplus 2 5,40,000
(2) Non-Current Liabilities
(a) Long-term borrowings 3 41,60,000
(3) Current Liabilities
(a) Trade Payables 4 76,35,250
Total 1,54,35,250
II. Assets
(1) Non-current assets
(a) PPE 5 1,10,00,000
(2) Current assets
(a) Other current assets 6 44,35,250
Total 1,54,35,250
Notes to Accounts
`
1 Share Capital
Authorized
8,00,000 Equity Shares of ` 5 each 40,00,000
Issued and Subscribed
6,20,000 Equity Shares of ` 5 each 31,00,000
(all the above shares are allotted as fully paid-up pursuant to a
contract without payment being received in cash)

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 8 INTERMEDIATE EXAMINATION: MAY, 2023

2 Reserve and Surplus

Capital Reserve 5,40,000
3 Long-term borrowings
Secured Loans
7.5% Debentures
X Ltd. 22,00,000
Y Ltd. 19,60,000 41,60,000
4 Current Liabilities:
Trade Payables
X Ltd. 59,70,000
Y Ltd. 18,02,500
77,72,500
Less: Mutual Owings (1,37,250) 76,35,250
5 Property, Plant and Equipment:
X Ltd. 71,00,000
Y Ltd. 39,00,000 1,10,00,000
6 Other Current Assets:
X Ltd. 29,95,000
Y Ltd. 15,77,500
45,72,500
Less: Mutual Owings (1,37,250) 44,35,250
Working Notes:
X Ltd. Y Ltd. Total
` ` `
(1) Purchase Consideration
Equity Shares Issued 15,50,000 15,50,000 31,00,000
7.5% Debentures Issued 22,00,000 19,60,000 41,60,000
37,50,000 35,10,000 72,60,000
(2) Capital Reserve
(a) Net Assets taken over
Property, plant & equipment 71,00,000 39,00,000 1,10,00,000
Current Assets 29,95,000 14,40,250* 44,35,250
1,00,95,000 53,40,250 1,54,35,250
Less: Current Liabilities (58,32,750**) (18,02,500) (76,35,250)
42,62,250 35,37,750 78,00,000

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 PAPER – 5 : ADVANCED ACCOUNTING 9

(b) Purchase Consideration 37,50,000 35,10,000 72,60,000

(c) Capital Reserve [(a) - (b)] 5,12,250 27,750 5,40,000

* 15,77,500–1,37,250 = 14,40,250
** 59,70,000–1,37,250 = 58,32,750
Note: In Working note 2 given above, the mutual owings amounting ` 1,37,250 included
in debtors and creditors of X Ltd. and Y Ltd. have been adjusted. Alternatively, the capital
reserve can be computed without adjustment of mutual owings. In that case, this working
note will be presented in the following manner:
Capital Reserve
(a) Net Assets taken over
Property, plant & equipment 71,00,000 39,00,000 1,10,00,000
Current Assets 29,95,000 15,77,500 45,72,500
1,00,95,000 54,77,500 1,55,72,500
Less: Current Liabilities (59,70,000) (18,02,500) (77,72,500)
41,25,000 36,75,000 78,00,000
(b) Purchase Consideration 37,50,000 35,10,0000 72,60,000
(c) Capital Reserve [(a) - (b)] 3,75,000 1,65,000 5,40,000
Question 3
(a) G Ltd. and its subsidiary K Ltd. give the following information for the year ended 31 stMarch,
2023: (` in crores)
Particulars G Ltd. K Ltd
Sales and other Income 3000 750
Increase in Inventory 750 100
Raw material consumed 600 100
Wages and Salaries 600 75
Production expenses 100 50
Administrative expenses 75 50
Selling and Distribution expenses 100 25
Interest 75 30
Depreciation 75 30

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 10 INTERMEDIATE EXAMINATION: MAY, 2023

The following information is also given:

(i) G sold goods of ` 200 crores to K Ltd. at cost plus 25%. (1/5 th of such goods were
still in inventory of K Ltd. at the end of the year)
(ii) G Ltd. holds 75% of the Equity share capital of K Ltd. and the Equity share capital of
K Ltd. is ` 800 crores on 01.04.2022 (date of acquisition of shares)
(iii) Administrative expenses of K Ltd. include ` 5 crore paid to G Ltd. as consultancy
fees. Also, selling and distribution expenses of G Ltd. include ` 20 crores paid to K
Ltd. as commission.
Prepare a consolidated statement of Profit and Loss of G Ltd. with its subsidiary K. Ltd. for
the year ended 31 st March, 2023. (15 Marks)
(b) SR Finance Ltd. is a Non-Banking Finance Company. The extracts of its balance sheet are
as follows:
Particulars Amount (` in lakhs)
Equity and Liabilities
Shareholders’ Funds
Paid up Equity Capital 300
Free Reserves 900
Non- Current Liabilities
Loans 750
Deposits 900
2850
Assets
Non-Current Assets
Property, Plant and Equipment 1350
Investments:
In shares of subsidiaries 375
In Debentures of group companies 600
Current Assets
Cash and Bank balances 525
2850

You are required to compute Net Owned Fund' of SR Finance Ltd. as per Non -Banking
Financial Company - Systematically Important Non-Deposit taking Company and Deposit
taking Company (Reserve Bank) Directions, 2016. (5 Marks)

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 PAPER – 5 : ADVANCED ACCOUNTING 11

Answer
(a) Consolidated statement of profit and loss of G Ltd. and its subsidiary K Ltd.
for the year ended on 31 st March, 2023
Particulars Note No. ` in Crores
I. Revenue from operations 1 3,525
II. Total Income 3,525
III. Expenses
Cost of material purchased/consumed 2 650
Changes of inventories of finished goods 3 (842)
Employee benefit expense 4 675
Finance cost 5 105
Depreciation and amortization expense 6 105
Other expenses 7 225
Total expenses 918
IV. Profit before tax (II-III) 2,607

Notes to Accounts
` in Crores ` in Crores
1. Revenue from operations
Sales and other income
G Ltd. 3,000
K Ltd. 750
3,750
Less: Inter-company sales (200)
Consultancy fees received by G Ltd. from K Ltd. (5)
Commission received by K Ltd. from G Ltd. (20) 3,525
2. Cost of material purchased/consumed
G Ltd. 600
K Ltd. 100
700
Less: Purchases by K Ltd. from G Ltd. (200) 500

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 12 INTERMEDIATE EXAMINATION: MAY, 2023

Direct expenses (Production)

G Ltd. 100
K Ltd. 50 150
650
3. Changes of inventories of finished goods
G Ltd. 750
K Ltd. 100
850
Less: Unrealized profits ` 40 crores × 25/125 (8) 842
4. Employee benefits and expenses
Wages and salaries:
G Ltd. 600
K Ltd. 75 675
5. Finance cost
Interest:
G Ltd. 75
K Ltd. 30 105
6. Depreciation
G Ltd. 75
K Ltd. 30 105
7. Other expenses
Administrative expenses
G Ltd. 75
K Ltd. 50
125
Less: Consultancy fees received by G Ltd. from K Ltd. (5) 120
Selling and distribution Expenses:
G Ltd. 100
K Ltd. 25
125
Less: Commission received by K Ltd. from G Ltd. (20) 105
225

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 PAPER – 5 : ADVANCED ACCOUNTING 13

Note: The information (i) given in the question states that G Ltd. sold goods of ` 200 crores
to K Ltd. at cost plus 25%. In the above solution it has been considered that the amount of
` 200 crores is sale value. Alternatively, ` 200 crores may be assumed as the cost of the
goods sold. In that case, the solution will differ and will be as follows:
Alternative solution:
Consolidated statement of profit and loss of G Ltd. and its subsidiary K Ltd.
for the year ended on 31st March, 2023
Particulars Note No. ` in Crores
I. Revenue from operations 1 3,475
II. Total Income 3,475
III. Expenses
Cost of material purchased/consumed 2 600
Changes of inventories of finished goods 3 (840)
Employee benefit expense 4 675
Finance cost 5 105
Depreciation and amortization expense 6 105
Other expenses 7 225
Total expenses 870
IV. Profit before tax (II-III) 2,605
Notes to Accounts
` in Crores ` in Crores
1. Revenue from operations
Sales and other income
G Ltd. 3,000
K Ltd. 750
3,750
Less: Inter-company sales (250)
Consultancy fees received by G Ltd. from K Ltd. (5)
Commission received by K Ltd. from G Ltd. (20) 3,475
2. Cost of material purchased/consumed
G Ltd. 600
K Ltd. 100
700
Less: Purchases by K Ltd. from G Ltd. (250) 450

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 14 INTERMEDIATE EXAMINATION: MAY, 2023

Direct expenses (Production)

G Ltd. 100
K Ltd. 50 150
600
3. Changes of inventories of finished goods
G Ltd. 750
K Ltd. 100
850
Less: Unrealized profits ` 40 crores × 25/100 (10) 840
4. Employee benefits and expenses
Wages and salaries:
G Ltd. 600
K Ltd. 75 675
5. Finance cost
Interest:
G Ltd. 75
K Ltd. 30 105
6. Depreciation
G Ltd. 75
K Ltd. 30 105
7. Other expenses
Administrative expenses
G Ltd. 75
K Ltd. 50
125
Less: Consultancy fees received by G Ltd. from K (5) 120
Ltd.
Selling and distribution Expenses:
G Ltd. 100
K Ltd. 25
125
Less: Commission received by K Ltd. from G Ltd. (20) 105
225

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 PAPER – 5 : ADVANCED ACCOUNTING 15

(b) Statement showing computation of 'Net Owned Fund'

Particulars ` in lakhs
Paid up Equity Capital 300
Free Reserves 900
A 1,200
Investments
In shares of subsidiaries 375
In debentures of group companies 600
B 975
10% of A 120
Excess of Investment over 10% of A (975-120) C 855
Net Owned Fund [(A) - (C)] (1,200 - 855) 345
Question 4
(a) H Ltd acquired 15000 shares in S Ltd. for 1,55,000 on July 1, 2022. The Balance sheet of
the two companies as on 31 st March, 2023 were as follows:
H Ltd.` S Ltd.`
Equity and Liabilities:
Equity Share Capital 9,00,000 2,50,000
(Fully paid shares of ` 10 each)
General Reserve 1,60,000 40,000
Surplus i.e., Balance in Statement of Profit and Loss 80,000 25,000
Bills payable 40,000 20,000
Trade Creditors 50,000 30,000
Total 12,30,000 3,65,000
Assets
Machinery 7,00,000 1,50,000
Furniture 1,00,000 70,000
Investment in Equity Shares of S Ltd. 1,55,000 -
Stock-in Trade 1,00,000 50,000
Trade Debtors 60,000 35,000
Bills Receivable 25,000 20,000
Cash at Bank 90,000 40,000
Total 12,30,000 3,65,000

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 16 INTERMEDIATE EXAMINATION: MAY, 2023

The following additional information is provided to you:

(i) General reserve appearing in the Balance Sheet of S Ltd. remained unchanged since
31st March, 2022.
(ii) Profit earned by S Ltd. for the year ended 31 st March, 2023 amounted to ` 20,000.
(iii) H Ltd. sold goods to S Ltd. costing ` 8,000 for ` 10,000, 25% of these goods remained
unsold with S Ltd. on 31 st March, 2023.
(iv) Creditors of S Ltd. include ` 4000 due to H Ltd. on account of these goods.
(v) Out of Bills payable issued by S Ltd. ` 15,000 are those which have been accepted
in favour of H Ltd. Out of these, H Ltd. had endorsed by 31 st March, 2023, ` 8000
worth of bills receivable in favour of its creditors.
You are required to draw a consolidated Balance Sheet as on 31 st March, 2023.
(15 Marks)
(b) State the circumstances when Garner v/s. Murry Rule is not applicable. (5 Marks)
Answer
(a) Consolidated Balance Sheet of H Ltd. and its Subsidiary S Ltd.
as at 31st March, 2023
Particulars Note No. (`)
I. Equity and Liabilities
(1) Shareholder's Funds
(a) Share Capital 1 9,00,000
(b) Reserves and Surplus 2 2,73,500
(2) Minority Interest 3 1,26,000
(3) Current Liabilities
(a) Trade Payables 4 1,29,000
Total 14,28,500
II. Assets
(1) Non-current assets
(a) Property, Plant and Equipment 5 10,20,000
(2) Current assets
(i) Inventory 6 1,49,500
(ii) Trade Receivables 7 1,29,000
(iii) Cash & cash equivalent 8 1,30,000
Total 14,28,500

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 PAPER – 5 : ADVANCED ACCOUNTING 17

Notes to Accounts
`
1. Share capital
Authorised, issued, subscribed and paid up capital
90,000 equity shares of ` 10 each, fully paid up 9,00,000
2. Reserves and Surplus
General Reserves 1,60,000
Profit and Loss Account (W.N.5) 88,500
Capital Reserve (W.N. 4) 25,000 2,73,500
3. Minority interest in S Ltd. (WN 3) 1,26,000
4. Trade payables
Bills Payable
H Ltd. 40,000
S Ltd. 20,000
60,000
Less: Mutual payables (7,000) 53,000

Trade Creditors
H Ltd. 50,000
S Ltd. 30,000
80,000
Less: Mutual owing (4,000) 76,000 1,29,000

5. Property, plant and equipment

Machinery H Ltd. 7,00,000
S Ltd. 1,50,000 8,50,000

Furniture H Ltd. 1,00,000

S Ltd. 70,000 1,70,000 10,20,000
6. Inventory
H Ltd. 1,00,000
S Ltd. 50,000
Less: Unrealized profit (2,000x 25%) (500) 1,49,500

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 18 INTERMEDIATE EXAMINATION: MAY, 2023

7. Trade receivables
Bills receivable
H Ltd. 25,000
S Ltd. 20,000
45,000
Less: Mutual payables (7,000) 38,000
Debtors
H Ltd. 60,000
S Ltd. 35,000
95,000
Less: Mutual owing (4,000) 91,000 1,29,000
8. Cash & cash equivalent
Cash at Bank H Ltd. 90,000
S Ltd. 40,000 1,30,000
Working Notes:
1. Percentage of holding
No. of Shares Percentage
Holding Co. : 15,000 (60%)
Minority shareholders : 10,000 (40%)
Total Shares : 25,000
2. Analysis of Profits
Pre-acquisition Post-acquisition
profits and profits of S Ltd.
reserves of S Ltd.
(`) (`)
General Reserve 40,000 ---
Opening balance of Profit and Loss 5,000 ---
Current Year’s profit (in 1:3) 5,000 15,000
50,000 15,000
H Ltd.’s share (60%) 30,000 9,000
Minority Interest (40%) 20,000 6,000

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 PAPER – 5 : ADVANCED ACCOUNTING 19

3. Minority Interest
Paid up value of 10,000 shares @ ` 10 each ` 1,00,000
Add: Share in pre-acquisition profits and reserve (40%) ` 20,000
Add: Share in post-acquisition profits (40%) ` 6,000
` 1,26,000
4. Capital Reserve for H Ltd.
(A) Cost of acquiring 15,000 shares of S Ltd. ` 1,55,000
(B) Paid up value of 15,000 shares of S Ltd. @ ` 10 each ` 1,50,000
Add: Share in pre-acquisition profit and reserves of S Ltd. ` 30,000
` 1,80,000
Capital Reserve (B-A) ` 25,000
5. Consolidated Balance of Profits of H Ltd.
Balance as per Statement of Profit and Loss ` 80,000
Add: Share in post-acquisition profits of S Ltd. ` 9,000
Less: Unrealised Profit in unsold stock of S Ltd. ` (500)
` 88,500
(b) The following are the circumstances when Garner vs Murray rule is not applicable:
1. When the solvent partner has a debit balance in the capital account.
Only solvent partners will bear the loss of capital deficiency of insolvent partner in
their capital ratio. If incidentally, a solvent partner has a debit balance in his capital
account, he will escape the liability to bear the loss due to insolvency of another
partner.
2. When the firm has only two partners.
3. When there is an agreement between the partners to share the deficiency in capital
account of the insolvent partner.
4. When all the partners of the firm are insolvent.
Question 5
(a) VIJ Ltd. has the following capital structure as on 31 st March, 2022:
Particulars (` In Lakhs)
Equity share capital (Shares of ` 10 each, fully paid) 990
Reserve and Surplus:
General Reserve 720
Securities Premium Account 270

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 20 INTERMEDIATE EXAMINATION: MAY, 2023

Profit & Loss Account 270

Infrastructure development Reserve 540 1800
Loan Funds 5400

On the recommendation of the Board of Directors, the shareholders of the company have
approved on 2 nd September 2022 a proposal to buy- back the maximum permissible
number of equity shares, considering the sufficient funds available at the disposal of the
company.
The current market value of the company's shares is ` 25 per share and in order to induce
the existing shareholders to offer their shares for buy- back, it was decided to offer a price
of 20% over market value.
You are also informed that the Infrastructure Development Reserve is created to satisfy
income tax requirements.
You are required to compute the maximum permissible number of equity shares that can
be brought back in the light of the above information and also under a situation where the
loan funds of the company were either ` 3600 lakh or ` 4500 lakh.
The entire buy-back is completed by 09/12/2022, show the accounting entries with full
narrations in the company's books in each situation.
(b) The following information are available in the books of Bank. (10 Marks)
Rebate on Bills discounted (01.04.2022) 65,500, Discount received during the year
` 1,25,000.
An analysis of the bills discounted is as follows:
Amount Due Date Rate of Discount (in %)
(i) 36,000 June 7,2023 12
(ii) 34,200 June 14,2023 12
(iii) 14,000 July 19,2023 10
(iv) 14,000 August 10,2023 15
(v) 12,500 September 5,2023 13
(vi) 11,000 October 7,2023 14

You are required to:

(i) Calculate the rebate on Bills Discounted as on 31-3-2023 and show necessary journal
entries.
(ii) Compute the amount of discount credited to Profit and Loss Account. (10 Marks)

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 PAPER – 5 : ADVANCED ACCOUNTING 21

Answer
(a) Statement determining the maximum number of shares to be bought back
Number of shares
Particulars When loan fund is
` 5,400 lakhs ` 3,600 lakhs ` 4,500 lakhs
Shares Outstanding Test (W.N.1) 24.75 24.75 24.75
Resources Test (W.N.2) 18.75 18.75 18.75
Debt Equity Ratio Test (W.N.3) Nil 11.25 Nil
Maximum number of shares that
can be bought back
[least of the above] Nil 11.25 Nil
Journal Entries for the Buy-Back
(applicable only when loan fund is ` 3,600 lakhs)
` in lakhs
Particulars Debit Credit
(a) Equity share capital account Dr. 112.50
Securities premium account Dr. 225.00
To Equity share buy- back account 337.5
(Being cancellation of shares bought back)
(b) Equity share buy-back account Dr. 337.50
To Bank account 337.50
(Being buy-back of 11.25 lakhs equity shares of ` 10
each @ ` 30 per share)
(c) General reserve account Dr. 112.50
To Capital redemption reserve account 112.50
(Being transfer of free reserves to capital redemption
reserve to the extent of nominal value of share capital
bought back out through free reserves)
Notes:
1. In place of entry (a), Alternative set of entries can be given as follows:
` in lakhs
Equity share capital A/c Dr. 112.50
Premium payable on buy-back Dr. 225.00

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 22 INTERMEDIATE EXAMINATION: MAY, 2023

To Equity shares buy-back A/c 337.50

(Being the amount due on buy-back of equity
shares)
Securities Premium A/c Dr. 225.00
To Premium payable on buy-back 225.00
(Being premium payable on buy-back charged
from Securities premium)
2. In place of entry (c), Alternative set of entries can be given as follows:
` in lakhs
Securities Premium A/c Dr. 45.00
General Reserve A/c Dr. 67.50 112.50
To Capital redemption reserve A/c
(Being transfer of free reserves to capital redemption reserve
to the extent of nominal value of share capital bought back
out through free reserves)

Working Notes:
1. Shares Outstanding Test
Particulars (Shares in lakhs)
Number of shares outstanding 99
25% of the shares outstanding 24.75

2. Resource Test
Particulars
Paid up capital (` in lakhs) 990
Free reserves (` in lakhs) (720+270+270) 1260
Shareholders’ funds (` in lakhs) 2250
25% of Shareholders fund (` in lakhs) ` 562.5 lakhs
Buy-back price per share ` 30
Number of shares that can be bought back (shares in 18.75 lakhs shares
lakhs)

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 PAPER – 5 : ADVANCED ACCOUNTING 23

3. Debt Equity Ratio Test

Particulars When loan fund is
` 5,400 lakhs ` 3,600 lakhs ` 4,500 lakhs
(a) Loan funds (` in lakhs) 5400 3600 4500
(b) Minimum equity to be
maintained after buy-
back in the ratio of 2:1
(` in lakhs) 2700 1800 2250
(c) Present equity
shareholders fund (` in
lakhs) 2250 2250 2250
(d) Future equity N.A. 2137.5 N.A.
shareholder fund (2250-112.5)
(` in lakhs)
(e) Maximum permitted Nil 337.5 (by Nil
buy-back of Equity (` in simultaneous
lakhs) [(d) – (b)]1 equation)
(f) Maximum number of Nil 11.25 (by Nil
shares that can be simultaneous
bought back @ equation)
` 30 per share (shares
in lakhs) (See Working
Note)
Under Situations 1 & 3 the company does not qualify for buy-back of shares as per
the provisions of the Companies Act, 2013.
Working Note:
Amount transferred to CRR and maximum equity to be bought back will be calculated by
simultaneous equation method.

1 As per section 68 of the Companies Act, 2013, the ratio of debt owed by the company should not be
more than twice the capital and its free reserve after such buy-back. In the question, it is stated that the
company has surplus funds to dispose of therefore; it is presumed that buy- back is out of free reserves
or securities premium and hence a sum equal to the nominal value of the share bought back shall be
transferred to Capital Redemption Reserve (CRR). Utilization of CRR is restricted to issuance of fully
paid-up bonus shares only. It means CRR is not available for distribution as dividend. Hence, CRR is
not a free reserve. Therefore, for calculation of future equity i.e. share capital and free reserves, amount
transferred to CRR on buy-back has to be excluded from present equit.

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Suppose amount equivalent to nominal value of bought back shares transferred to CRR
account is ‘x’ and maximum permitted buy-back of equity is ‘y’.
Then
Equation 1 : (Present equity – Nominal value of buy-back transfer to CRR) – Minimum
equity to be maintained= Maximum permissible buy-back of equity
(2250 –x)-1800 = y (1)
Since 450 – x = y
 Maximum buy - back 
Equation 2:  x Nominal Value 
 Offer price for buy - back 
= Nominal value of the shares bought –back to be transferred to CRR

=  y 10  = x
 30 
Or 3x = y (2)
by solving the above two equations we get
x = ` 112.5 lakhs
y = ` 337.5 lakhs
(b) (i) Statement showing rebate on bills discounted
Amount Due Date Days after 31.3.2023 Rate of Discount
discount Amount
36,000 7.6.2023 (30+31+7) 68 12% 804.822
34,200 14.6.2023 (30+31+14) 75 12% 843.288
14,000 19.7.2023 (30+31+30+19) 110 10% 421.918
14,000 10.8.2023 (30+31+30+31+10) 132 15% 759.452
12,500 5.9.2023 (30+31+30+31+31+5) 158 13% 703.425
11,000 7.10.2023 (30+31+30+31+31+30+7) 190 14% 801.644
1,21,700 4,334.549
In the books of Bank
Journal Entries
(i) Rebate on bills discounted Account Dr. 65,500
To Discount on bills Account 65,500
[Being opening balance of rebate on
bills discounted account transferred
to discount on bills account]

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 PAPER – 5 : ADVANCED ACCOUNTING 25

(ii) Discount on bills Account Dr. 4,334.549

To Rebate on bills 4,334.549
discounted Account
[Being provision made on 31 st March,
2023]
(iii) Discount on bills Account Dr. 1,86,165.451
To Profit and loss Account 1,86,165.451
[Being transfer of discount on bills, of
the year, to profit and loss account]
(ii) Computation of amount credited to Profit and Loss A/c will be as follows:
` (1,25,000 + 65,500 – 4,334.549) = ` 1,86,165.451
Note: Amount of discount may be rounded off for different bills. In that case, the answer
will be given as follows:
(i) Statement showing rebate on bills discounted
Amount Due Date Days after 31.3.2023 Rate of Discount
discount Amount
36,000 7.6.2023 (30+31+7) 68 12% 805
34,200 14.6.2023 (30+31+14) 75 12% 843
14,000 19.7.2023 (30+31+30+19) 110 10% 422
14,000 10.8.2023 (30+ 31+ 30+31+ 10) 132 15% 759
12,500 5.9.2023 (30+ 31+ 30+31+31+ 5) 158 13% 703
11,000 7.10.2023 (30+31+30+31+31+30+7) 190 14% 802
1,21,700 4,334
In the books of Bank
Journal Entries
(i) Rebate on bills discounted Account Dr. 65,500
To Discount on bills Account 65,500
[Being opening balance of rebate on bills
discounted account transferred to discount on
bills account]
(ii) Discount on bills Account Dr. 4,334
To Rebate on bills discounted Account 4,334
[Being provision made on 31 st March, 2023]

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 26 INTERMEDIATE EXAMINATION: MAY, 2023

(iii) Discount on bills Account Dr. 1,86,166

To Profit and loss Account 1,86,166
[Being transfer of discount on bills, of the year,
to profit and loss account]
(ii) Computation of amount credited to Profit and Loss A/c will be as follows:
` (1,25,000 + 65,500 – 4,334) = ` 1,86,166
Question 6
Answer any four of the following:
(a) What are the conditions to be fulfilled by a Joint Stock Company to buy -back its equity
shares as per Companies Act, 2013? Explain. (5 Marks)
(b) Following is the Balance Sheet of Hari Ltd, which is in the hands of the liquidators:
Balance Sheet as on 31/03/2023
Liabilities (` ) Assets (` )
Share Capital: - Fixed Assets 4,00,000
2,000 6% Preference Shares of Inventory 2,40,000
` 100 each fully paid 2,00,000 Trade Receivables 4,80,000
4,000 Equity Shares of ` 100 each Cash in hand 80,000
fully paid 4,00,000 Profit & Loss account 6,00,000
4,000 Equity Shares of ` 100 each
` 75 paid-up 3,00,000
Loan form Bank 2,00,000
(on security of inventory)
Trade payables 7,00,000
18,00,000 18,00,000
The assets realized the following amounts (after all costs of realization). Liquidator's
commission amounting to 10,000 paid out of cash in hand.
(` )
Fixed Assets 3,36,000
Inventory 2,20,000
Trade Receivables 4,60,000
Calls on partly shares were made out of the amounts due on 400 shares were found to be
irrecoverable.
You are required to prepare liquidator's final statement of account. (5 Marks)

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 PAPER – 5 : ADVANCED ACCOUNTING 27

(c) What are the requirements an LLP regarding Financial Disclosures, Books of Accounts,
Audits, and Annual returns? (5 Marks)
(d) ABC Ltd. has its share capital divided into Equity Shares of ` 10 each. On 1stApril, 2022,
the company offered 150 share option to each of its 250 employees at ` 70 per share,
when the market price was ` 160 per share. Fair value per option was ` 90. The options
were to be exercised between 01-03-2023 and 31-03-2023. 200 employees accepted the
offer and paid ` 70 per share and the remaining options lapsed. The company closes its
books on 31 stMarch every year. You are required to show Journal entries as would appear
in the books of ABC Ltd. for the year ended 31 stMarch, 2023 with regards to employee
stock options. (5 Marks)
(e) X Ltd. had ` 1,00,000 equity share capital divided into 1,000 shares of ` 100 each out of
which ` 80 per share was called up and paid up. It has 1,500 cumulative preference shares
of ` 100 each fully paid up. Intangible assets include Goodwill of ` 80,000 and patents of
` 27,800. Preference dividends are in arrears of ` 33,000.
You are required to show the entries (Ignore dates) under each of the following conditions:
(i) If X Ltd. resolves to subdivide the equity shares into 10,000 equity shares of ` 10
each of which ` 8 per share is called up and paid up.
(ii) If X Ltd. resolves to convert its 1,000 equity shares of ` 100 each (assume fully -
paid) into ` 1,00,000 worth of stock.
(iii) The preference shares are to be converted into 11% unsecured debentures of ` 100
each (including arrears of dividends).
(iv) Patents and Goodwill to be written-off. (5 Marks)
Answer
(a) As per the Companies Act, 2013 a joint stock company has to fulfill the following conditions
to buy-back its own equity shares:
(1) (a) the buy-back is authorised by its articles;
(b) a special resolution has been passed in general meeting of the company
authorising the buy-back;
However, the above provisions do not apply where the buy-back is 10% or less
of the paid-up equity capital + free reserves and is authorized by a board
resolution passed at a duly convened meeting of the directors.
(c) the buy-back must be equal or less than 25% of the total paid-up capital and
free reserves of the company: (Resource Test)

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(d) Further, the buy-back of shares in any financial year must not exceed 25% of its
total paid-up capital and free reserves: (Share Outstanding Test)
(e) the ratio of the debt owed by the company (both secured and unsecured) after
such buy-back is not more than twice the total of its paid-up capital and its free
reserves: (Debt-Equity Ratio Test)
(f) all the shares or other specified securities for buy-back are fully paid-up;
(g) the buy-back of the shares or other specified securities listed on any recognised
stock exchange is in accordance with the regulations made by the Securities
and Exchange Board of India in this behalf;
Provided that no offer of the buy-back under this sub section shall be made
within a period of one year reckoned from the date of closure of a previous offer
of buy-back if any. This means that there cannot be more than one buy-back in
one year.
(2) Every buy-back shall be completed within twelve months from the date of passing the
special resolution, or the resolution passed by the board of directors.
(3) Where a company purchases its own shares out of the free reserves or securities
premium account, a sum equal to the nominal value of shares so purchased shall be
transferred to the Capital Redemption Reserve Account and details of such account
shall be disclosed in the Balance Sheet.
(4) Premium (excess of buy-back price over the par value) paid on buy-back should be
adjusted against free reserves and/or securities premium account.
(b) Liquidator’s Final Statement of Account
` ` `
To Cash in hand 80,000 By Liquidator’s commission 10,000
To Assets realized:
Fixed assets 3,36,000 By Trade Payables 7,00,000
Inventory By Preference shareholders 2,00,000
(2,20,000–2,00,000) 20,000
Trade receivables 4,60,000 By Equity shareholders @
8,16,000 ` 10 on 4,000 shares 40,000
To Cash - proceeds of
call on 3,600 equity
shares @ ` 15* 54,000
9,50,000 9,50,000

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Working Note:
Return per equity share
`
Cash available before paying preference shareholders
(` 8,96,000 – ` 7,10,000) 1,86,000
Add: Notional calls 3,600 shares (4,000-400) × ` 25 90,000
2,76,000
Less: Preference share capital (2,00,000)
Available for equity shareholders 76,000
` 76,000
Return per share = = ` 10
7,600 (8,000-400)
and Loss per Equity Share ` (100-10) = ` 90
*Calls to be made @ ` 15 per share (` 90-75) on 3,600 shares.
Alternative presentation for the Working Note:
`
Cash available after paying preference shareholders
(` 8,96,000 – ` 9,10,000) (14,000)
Add: Notional calls 3,600 shares (4,000-400) × ` 25 90,000
Available for equity shareholders 76,000
` 76,000
Return per share = = ` 10
7,600 (8,000-400)
and Loss per Equity Share ` (100-10) = ` 90

(c) Requirements of an LLP regarding financial disclosures, books of accounts, audits

and annual returns as per LLP Act:
1. Every LLP should maintain such proper books of accounts as may be prescribed
relating to its affairs for each year of its existence on cash basis or accrual basis and
according to the double-entry system of accounting and should maintain the same at
its registered office for such period as may be prescribed;
2. Every LLP should within six months of the end of each financial year prepare a
Statement of Account and Solvency for the said financial year as at the last day of
the said financial year, in such form as may be prescribed, and such statement should
be signed by the designated partners of the LLP;

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3. Every LLP should file within the prescribed time, the Statement of Account and
Solvency with the Registrar every year in such form and manner and accompanied
by such fee as may be prescribed.
4. The accounts of an LLP must be audited in accordance with such rules as may be
prescribed.
5. Every LLP is required to file an Annual Return which is duly authenticated with the
registrar within sixty days of the closure of its financial year in such form and manner
and with such fees as may be prescribed.
(d) Journal Entries in the books of ABC Ltd
` `
1.03.2023 Bank A/c (200 x 150 x ` 70) Dr. 21,00,000
to Employee compensation expense A/c Dr. 27,00,000
(200 x 150 x ` 90)
31.3.2023 To Equity share capital A/c 3,00,000
(200 x 150 x ` 10)
To Securities premium A/c 45,00,000
(200 x 150 x ` 150)
(Being shares issued to the employees against
the options vested to them in pursuance of
Employee Stock Option Plan)
31.3.2023 Profit and Loss A/c Dr. 27,00,000
To Employee compensation expenses 27,00,000
A/c
(Being transfer of employee compensation
expenses transfer to Profit and Loss Account)

(e) Journal Entries in the books of X Ltd.

` `
(i) Equity Share Capital (` 100) A/c Dr. 80,000
To Equity Share Capital (` 10) A/c 80,000
(Being the sub-division of 1,000 shares of ` 100
each with ` 80 paid up into 10,000 shares ` 10
each with ` 8 paid up by resolution in general
meeting dated....)

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(ii) Equity Share Capital (` 100) A/c Dr. 1,00,000

To Equity Stock A/c 1,00,000
(Being conversion of 1,000 fully paid Equity
Shares of ` 100 into ` 1,00,000 Equity Stock as
per resolution in general meeting dated…)
(iii) Cumulative Preference Share Capital A/c Dr. 1,50,000
Capital Reduction (Reconstruction) A/c Dr. 33,000
To 11% Debentures (Unsecured) 1,83,000
(Being 1,500 cumulative preference shares of
` 100 each fully paid up converted into 11%
debentures of ` 100 each (including arrears of
dividends amounting ` 33,000)
(iv) Capital Reduction (Reconstruction) A/c Dr. 1,07,800
To Goodwill 80,000
To Patents 27,800
(Writing off patents, goodwill)

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 PAPER – 5: ADVANCED ACCOUNTING
Question No.1 is compulsory.
Candidates are also required to answer any four questions from the remaining five questions.
Working notes should form part of the respective answers.
Wherever necessary, candidates are permitted to make suitable assumptions which should be
disclosed by way of a note.
Question 1
(a) The Accountant of Shiva Limited had sought your opinion with relevant reasons, whether
the following transactions will be treated as change in Accounting Policies or change in
Accounting Estimates for the year ended 31 st March, 2021. Please advise him in the
following situations in accordance with the provisions of AS 5:
(i) Provision for doubtful debts was created @3% till 31 st March, 2020. From the
Financial year 2020-2021, the rate of provision has been changed to 4%.
(ii) During the year ended 31 st March,2021, the management has introduced a formal
gratuity scheme in place of ad-hoc ex-gratia payments to employees on retirement.
(iii) Till 31st March, 2020 the furniture was depreciated on straight line basis over a period
of 5 years. From the Financial year 2020-2021, the useful life of furniture has been
changed to 3 years.
(iv) Management decided to pay pension to those employees who have retired after
completing 5 years of service in the organization. Such employees will get pension of
` 20,000 per month. Earlier there was no such scheme of pension in the organization.
(v) During the year ended 31 st March 2021, there was change in cost formula in
measuring the cost of inventories.
(b) The following information is furnished in respect of Mohit Limited for the year ending
31st March,2022.
(i) Depreciation as per accounting records ` 56,000
Depreciation for income tax records ` 38,000
The above depreciation does not include depreciation on new addition.
(ii) A new machinery purchased on 1 st April, 2021 costing ` 24,000 on which 100%
depreciation in allowed in the 1 st Year for income tax purpose, whereas straight line
method of depreciation is considered appropriate for accounting purpose with a life
estimation of 4 years.
(ii) The company has made a profit of ` 1,28,000 before depreciation and taxes.

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(iv) Donation to private trust during the year is ` 15,000 (not allowed under Income tax
laws.)
(v) Corporate tax is 40%.
Prepare relevant extract of statement of Profit & Loss for the year ending 31 st March, 2022.
Also show the effect of the above items on Deferred Tax Liability/Assets as per AS 22.
(c) The following information is provided to you:
Net profit for the year 2022: ` 72,00,000
Weighted average number of equity shares outstanding
during the year 2022: 30,00,000 shares
Average Fair value of one equity share during the year 2022: ` 25.00
Weighted average number of shares under option
during the year 2022: 6,00,000 shares
Exercise price for shares under option during the year 2022: ` 20.00
You are required to compute Basic and Diluted Earnings Per Share as per AS 20.
(d) MN Limited operates its business into various segments. Its financial year ended on
31st March, 2022 and financial statements were approved by their approving authority on
15th June, 2022. The following material events took place:
(i) On 7th April, 2022, a fire completely destroyed a manufacturing plant of the entity. It
was expected that the loss of ` 15 crores would be fully covered by the insurance
company.
(ii) A claim for damage amounting to ` 12 crores for breach of patent had been received
by the entity prior to the year end. It is the director's opinion, backed by legal advice
that the claim will ultimately prove to be baseless. But it is still estimated that it would
involve a considerable expenditure on legal fees.
(iii) A major property was sold (it was included in the balance sheet at ` 37,50,000) for
which contracts had been exchanged on 15 th March, 2022. The sale was completed
on 15 th May, 2022 at a price of ` 39,75,000.
You are required to state with reasons, how each of the above items should be dealt with
in the financial statements of MN Limited for the year ended 31 st March, 2022 as per AS 4.
(4 Parts x 5 Marks= 20 Marks)
Answer
(a) (i) In the given case, company has created 3cer% provision for doubtful debts till
31st March, 2020. Subsequently from 1 st April, 2020, the company revised the
estimates based on the changed circumstances and wants to create 4% provision.
Thus, change in rate of provision of doubtful debt is change in estimate and is not

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 PAPER – 5 : ADVANCED ACCOUNTING 3

change in accounting policy. This change will affect only current year.
(ii) As per AS 5 “Net Profit or Loss for the Period, Prior Period Items and Changes in
Accounting Policies”, the adoption of an accounting policy for events or transactions
that differ in substance from previously occurring events or transactions, will not be
considered as a change in accounting policy. Introduction of a formal retirement
gratuity scheme by an employer in place of ad hoc ex-gratia payments to employees
on retirement is a transaction which is substantially different from the previous
transaction, will neither be treated as change in an accounting policy nor change in
accounting estimate.
(iii) Change in useful life of furniture from 5 years to 3 years is a change in accounting
estimate and is not a change in accounting policy.
(iv) Adoption of a new accounting policy for events or transactions which did not occur
previously should not be treated as a change in an accounting policy. Hence the
introduction of new pension scheme is neither a change in accounting policy nor a
change in accounting estimate.
(v) Change in cost formula used in measurement of cost of inventories is a change in
accounting policy.
(b) Statement of profit and Loss for the year ended 31 st March, 2022 (An Extract)
`
Profit before taxes and depreciation 1,28,000
Less: Depreciation (56,000+ 6,000) 62,000
Profit before tax 66,000
Less: Current tax (W.N) (32,400)
Deferred Tax Nil
Profit after tax 33,600
Working Note:
Computation of taxable income
`
Profit before taxes and depreciation 1,28,000
Less: Depreciation (38,000+ 24,000) (62,000)
66,000
Add: Donation* 15,000
81,000
Current tax (40%) 32,400

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 4 INTERMEDIATE EXAMINATION: NOVEMBER, 2022

Note: The profit of ` 1,28,000 given in the question is before depreciation and taxes. It
has been considered that this amount is after making adjustment of donation amounting
` 15,000.
Impact of various items in terms of deferred tax liability/deferred tax asset
Transactions Nature of difference Effect Amount
(1) Difference in Timing difference Reversal of DTL ` 18,000
depreciation (56,000 – 38,000)
(old  40% =
machinery) (+) ` 7,200
(2) Depreciation Timing difference Creation of DTL ` 18,000
on new (24,000 – 6,000) x
machinery 40%
= (-) ` 7,200
(3) Donation to Permanent difference Not applicable --
private trusts
Net Effect of Deferred Tax NIL
(c) Computation of Basic earnings per share
Earnings Shares Earnings/
Share
` `
Net profit for the year 2022 72,00,000
Weighted average no. of shares during year 2022 30,00,000
Basic earnings per share (72,00,000/30,00,000) 2.40
Computation of Diluted earnings per share
Earnings Shares Earnings/Share
` `
Net profit for the year 2022 72,00,000
Weighted average no. of shares during 30,00,000
year 2022
Number of shares under option 6,00,000
Number of shares that would have been
issued at fair value
(6,00,000 x 20.00)/25.00 (4,80,000)
Diluted earnings per share 72,00,000 31,20,000 2.31
(rounded-off)

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 PAPER – 5 : ADVANCED ACCOUNTING 5

Note: The earnings have not been increased as the total number of shares has been
increased only by the number of shares (1,20,000) deemed for the purpose of the
computation to have been issued for no consideration.
To the extent that partly paid shares are not entitled to participate in dividends during the
reporting period they are considered the equivalent of options.
(d) Treatment as per AS 4 ‘Contingencies and Events Occurring After the Balance Sheet
Date’
(i) The event is a non-adjusting event since it occurred after the year-end and does not
relate to the conditions existing at the year-end. However, it is necessary to consider
the validity of the going concern assumption having regard to the ex tent of insurance
cover. Also, since it is said that the loss would be fully recovered by the insurance
company, the fact should be disclosed by way of note in the financial statements.
(ii) On the basis of evidence provided, the claim against the company will not succeed.
Thus, 12 crores should not be provided in the account but should be disclosed by
means of a contingent liability with full details of the facts as per AS 29. Provision
can be made for legal fee expected to be incurred to the extent that they are not
expected to be recovered if the amount can be ascertained.
(iii) The sale of property should be treated as an adjusting event since contracts had been
exchanged prior to the year-end. The effect of the sale would be reflected in the
financial statements ended on 31.3.2022 and the profit on sale of property ` 2,25,000
would be considered.
Question 2
The following is the Balance Sheet of Purple Limited as at 31 st March, 2022:
Particulars Notes Amount in `
I. Equity and Liabilities
(1) Shareholders’ Funds
(a) Share Capital 1 15,00,000
(b) Reserves & Surplus 2 (3,00,000)
(2) Current Liabilities
(a) Trade Payables 2,20,000
(b) Short Term Borrowings – Bank Overdraft 2,00,000
Total 16,20,000

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 6 INTERMEDIATE EXAMINATION: NOVEMBER, 2022

II. Assets
(1) Non-Current Assets
(a) Property, Plant and Equipment 3 10,20,000
(b) Intangible Assets 4 1,20,600
(2) Current Assets
(a) Inventories 1,70,000
(b) Trade Receivables 3,01,800
(c) Cash and cash equivalents 7,600
Total 16,20,000
Notes to Accounts
` `
(1) Share Capital
90,000 Equity Shares of ` 10 each fully paid 9,00,000
6% Preference Share Capital 6,00,000 15,00,000
(2) Reserves & Surplus
Profit & Loss account (3,00,000)
(3) Property, Plant and Equipment
Land and Building 5,40,000
Plant and Machinery 4,80,000 10,20,000
(4) Intangible Assets
Goodwill 84,600
Patents 36,000 1,20,600
Dividends on preference shares are in arrears for 3 years.
On the above date, the company adopted the following scheme of reconstruction:
(i) The preference shares are converted from 6% to 8% but revalued in a manner in which
the total return on them remains unaffected.
(ii) The value of equity shares is brought down to ` 8 per share.
(iii) The arrears of dividend on preference shares are cancelled.
(iv) The debit balance of Goodwill account is written off entirely.
(v) Land and Building and Plant and Machinery are revalued at 85% and 80% of their
respective book values.
(vi) Book debts amounting to ` 14,400 are to be treated as bad and hence to be written off.

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 PAPER – 5 : ADVANCED ACCOUNTING 7

(vii) The company expects to earn a profit at the rate of ` 90,000 per annum from the current
year which would be utilized entirely for reducing the debit balance of Profit and loss
accounts for 3 years. The remaining balance of the said account would be written off at the
time of capital reduction process.
(viii) The balance of total capital reduction is to be utilized in writing down Patents.
(ix) A secured loan of ` 4,80,000 bearing interest at 12% per annum is to be obtained by
mortgaging tangible fixed assets for repayment of bank overdraft and for providing
additional funds for working capital.
You are required to give journal entries incorporating the above scheme of reconstruction,
capital reduction account and prepare the reconstructed Balance Sheet. (20 Marks)
Answer
Journal Entries In the books of Purple Ltd.
Particulars Debit Credit
(`) (`)
1. 6% Preference share capital A/c Dr. 6,00,000
To 8% Preference share capital A/c 4,50,000
To Capital reduction A/c 1,50,000
(Being 6% preference shares converted to 8%
preference shares so that return to pref. shareholders
remains unaffected)
2. Equity share capital A/c (` 10) Dr. 9,00,000
To Equity share capital A/c (` 8) 7,20,000
To Capital reduction A/c 1,80,000
(Being equity capital reduced to nominal value of ` 8
each)
3. Capital Reduction A/c Dr. 3,30,000
To Goodwill A/c 84,600
To Land and Building A/c 81,000
To Plant and Machinery A/c 96,000
To Trade Receivables A/c (Book debts) 14,400
To Patents A/c (Bal. fig.) 24,000
To Profit and loss A/c 30,000
(Being losses and assets written off to the extent
required)

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 8 INTERMEDIATE EXAMINATION: NOVEMBER, 2022

4. Bank A/c Dr. 4,80,000

To Bank Loan A/c 4,80,000
(Being Loan taken)
5. Bank overdraft A/c Dr. 2,00,000
To Bank A/c 2,00,000
(Being Bank overdraft repaid)

Capital Reduction Account

Particulars ` Particulars `
To Goodwill A/c 84,600 By Equity Share Capital A/c 1,80,000
To Land & Building A/c 81,000 By 6% Preference Share 1,50,000
Capital A/c
To Plant and Machinery A/c 96,000
To Trade receivables (Book 14,400
Debts) A/c
To Profit & Loss A/c 30,000
To Patents A/c (Bal. fig.) 24,000
3,30,000 3,30,000
Balance Sheet of Purple Ltd. (and reduced)
as at 31.3.2022
Particulars Notes `
Equity and Liabilities
1 Shareholders' funds
a Share capital 1 11,70,000
b Reserves and surplus 2 (2,70,000)
2 Current liabilities
a Short term borrowings (Secured Bank Loan) 4,80,000
b Trade Payables 2,20,000
Total 16,00,000
Assets
1 Non-current assets
a Property, plant and equipment 3 8,43,000
b Intangible assets 4 12,000

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 PAPER – 5 : ADVANCED ACCOUNTING 9

2 Current Assets
a Inventory 1,70,000
b Trade receivables 5 2,87,400
c Cash and cash equivalents (7,600+4,80,000-2,00,000) 2,87,600
Total 16,00,000

Notes to Accounts:
`
1. Share Capital
Authorized
Issued, subscribed and paid up:
90,000 equity shares of ` 8 each fully paid 7,20,000
8% Preference share capital* 4,50,000 11,70,000
2. Reserves and Surplus
Profit and Loss Account (Dr. balance) (2,70,000)
3. Property plant and equipment
Land and Building 4,59,000
Plant and Machinery 3,84,000 8,43,000
4. Intangible assets
Patent ` (36,000 - 24,000) 12,000
5. Trade Receivables
Sundry Debtors 3,01,800
Less: Bad debts (14,400) 2,87,400
Note: *Face value of preference share is not given in the question (pre and post
reconstruction) and hence any suitable value of preference share may be assumed.
Working Notes:
1. Calculation of new Preference Shares
Rate of return : 6% on Preference Shares
Dividend : (6/100) x ` 6,00,000 = ` 36,000
Rate of return : 8% on Preference Shares
Dividend : (8/100) x X = ` 36,000
X = (36,000/8) x 100 = ` 4,50,000

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 10 INTERMEDIATE EXAMINATION: NOVEMBER, 2022

New Preference Share Capital = ` 4,50,000

Old Preference Share Capital = ` 6,00,000
(6,00,000 – 4,50,000) = ` 1,50,000 Amount taken to Capital
Reduction A/c.
2. Since the company expects to earn a profit of ` 90,000 p.a. consecutively for three
years and it shall be used to write-off debit balance of P & L account, hence `
2,70,000 being loss shall be shown in the Balance Sheet under Reserve & Surplus
head and ` 30,000 shall be written-off from Capital Reduction A/c.
3. Calculation of Amount written off on Land & Building and Plant & Machinery
Land & Building = (85/100) x 5,40,000 = ` 4,59,000
Plant & Machinery = (80/100) x 4,80,000 = ` 3,84,000
Reduced by:
Land & Building = (5,40,000 - 4,59,000) = ` 81,000
Plant & Machinery = (4,80,000 - 3,84,000) = ` 96,000
Question 3
(a) H Ltd. and S Ltd. provide the following information as at 31 st March,2022:
H Ltd.` S Ltd.`
Property, Plant and Equipment 2,00,000 2,60,000
Investments (14,000 Equity Shares of S Ltd.) 2,52,000 -
Current Assets 1,48,000 1,40,000
Share capital (Fully paid equity shares of ` 10 each) 3,00,000 2,00,000
Profit and loss account 1,00,000 80,000
Trade Payables 2,00,000 1,20,000
Additional information:
H Ltd. acquired the shares of S Ltd. on 1 stJuly, 2021 and Balance of profit and loss account
of S Ltd. on 1stApril, 2021 was ` 60,000. Prepare consolidated balance sheet of H Ltd.
and its subsidiary as at 31 st March, 2022. (15 Marks)
(b) DS Finance Limited is a non-banking financial company. It provides you with the following
information regarding its outstanding amount, ` 100 lakhs of which instalments are
overdue on:
• 400 accounts for last one month (amount overdue ` 20 lakhs),
• 24 accounts for two months (amount overdue ` 12 lakhs),

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 PAPER – 5 : ADVANCED ACCOUNTING 11

• 10 accounts for more than 30 months (amount overdue ` 10 lakhs)

• 4 accounts for more than 3 years (amounts overdue ` 10 lakhs - already identified as
sub-standard assets)
• 1 account of ` 5 lakhs which has been identified as non- recoverable by management.
• Out of 10 accounts overdue for more than 30 months, 6 accounts are already
identified as sub-standard (amount ` 3 lakhs) for more than 12 months and others
are identified as sub-standard assets for a period of less than twelve months.
Classify the assets of the company in line with Non-Banking Financial Company-
Systemically Important Non-Deposit taking Company and Deposit taking Company
(Reserve Bank) Directions, 2016. (5 Marks)
Answer
(a) Consolidated Balance Sheet of H Ltd. and its subsidiary S Ltd.
as at 31 st March, 2022
Note No Amount (`)
I Equity and Liabilities
1 Shareholders’ Fund:
(a) Share Capital 1 3,00,000
(b) Reserve and Surplus 2 1,10,500
2 Minority interest 3 84,000
3 Current Liabilities
Trade payables 4 3,20,000
Total 8,14,500
II Assets
1 Non-Current Assets:
Property, plant and equipment 5 4,60,000
Intangible Asset 6 66,500
2 Current Assets 7 2,88,000
Total 8,14,500
Notes to Accounts
Amount (`)
1 Share capital 3,00,000
30,000 Equity Shares @ `10 each

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 12 INTERMEDIATE EXAMINATION: NOVEMBER, 2022

2 Reserve and Surplus

Profit and loss account (` 1,00,000 + 70% of 9/12 x 20,000 i.e.
` 10,500) 1,10,500
3 Minority Interest (W/N 2) 84,000
4 Trade payables
H Ltd. 2,00,000
S Ltd. 1,20,000
3,20,000
5 Property, plant and equipment
H Ltd. 2,00,000
S Ltd. 2,60,000
4,60,000
6 Intangible Asset:
Goodwill (W/N 3) 66,500
7 Current Assets
H Ltd. 1,48,000
S Ltd. 1,40,000
2,88,000
Working Notes:
1. Percentage of holding
No. of Shares Percentage
Holding Co. : 14,000 (70%)
Minority shareholders : 6,000 (30%)
Total Shares : 20,000
2. Calculation of Minority Interest
Share capital (30% of ` 2,00,000) 60,000
Share in Profit and loss account (` 80,000 X 30%) 24,000 84,000
3. Calculation of Cost of Control (Goodwill)
Cost of Investment 2,52,000
Less: Paid up value of shares (70% of ` 2,00,000) (1,40,000)
Share in pre-acquisition profits
70% of [60,000+3/12(80,000-60,000)] (45,500)
66,500

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(b) Statement showing classification as per Non-Banking Financial Company - Systemically

Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank)
Directions, 2016
(` in lakhs)
Standard Assets:
Accounts (Balancing figure) 43.00
400 accounts overdue for a period of 1 month 20.00
24 accounts overdue for a period of 2 months 12.00 75.00
Sub-Standard Assets:
4 accounts identified as sub-standard asset for a period less than 12 7.00
months
Doubtful Debts:
6 accounts identified as sub-standard for a period more than 12 3.00
months
4 accounts identified as sub-standard for a period more than 3 years 10.00
Loss Assets
1 account identified by management as loss asset 5.00
Total overdue 100.00

Question 4
(a) M, N and O were in partnership sharing profits and losses in the ratio of 3:2: 1. There was
no provision in the agreement for interest on capitals or drawings.
M died on 31st March, 2021 and on that date, the partners' balances were as under:
Capital Account: M- ` 75,000 (Cr); N- ` 50,000 (Cr); O- ` 25,000 (Cr)
Current Account: M- ` 50,000 (Cr); N- ` 37,500 (Cr); O- ` 12,500 (Dr)
By the partnership agreement, the sum due to M's estate was required to be paid within a
period of 3 years, and minimum instalment of ` 37,500 each were to be paid, the first such
instalment falling due immediately after death and the subsequent instalment s at half-
yearly intervals. Interest @ 6% was to be credited half-yearly.
In ascertaining M's share, Goodwill (not recorded in the books) was to be valued at
` 1,12,500 and the assets, excluding the Joint Assurance Policy (mentioned below) were
valued at ` 75,000 in excess of the book values.
No Goodwill account was raised and no alteration was made to the book values of fixed
assets. The Joint Assurance Policy shown in the books at ` 50,000 matured on 01.04.2021,
realizing ` 65,000; payment of ` 37,500 each were made to M's Executors on 01.04.2021,
30.09.2021 and 31.03.2022. N and O continued trading on the same terms and conditions

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 14 INTERMEDIATE EXAMINATION: NOVEMBER, 2022

as previously and the net profit for the year ending 31.03.2022 (before charging the interest
due to M's estate) amounted to ` 65,000. During that period, the partners' drawings were
N -` 18,750 and O -` 10,000.
On 01.04.2022, the partnership was dissolved and an offer to purchase the business as a
going concern for ` 2,25,000 was accepted on that day. A cheque for that sum was
received on 30.06.2022.
The balance due to M's estate, including interest, was paid on 30.06.2022 and on that day,
N and O received the sums due to them.
You are required to write-up the Partners' Capital Accounts and Partners' Current Accounts
from 01.04.2021 to 30.06.2022. Show also the account of executors of M. (15 Marks)
(b) Differentiate on ordinary partnership firm with an LLP (Limited Liability Partnership) firm in
respect of the following:
(i) Applicable Law
(ii) Perpetual Succession
(iii) Ownership of Assets
(iv) Liability of Partners / Members
(v) Principal-Agent Relationship (5 Marks)
Answer
(a) Partners’ Current Accounts
Particulars M N O Particulars M N O
` ` ` ` ` `
31.3.2021 31.3.2021
To Balance b/d - - 12,500 By Balance b/d 50,000 37,500 -
To M’s Current - 37,500 18,750 By N’s Current 37,500 - -
A/c– goodwill A/c –goodwill
To M’s Current - 25,000 12,500 By O’s Current 18,750 - -
A/c– A/c –
Revaluation goodwill
Profit
To M’s Capital 1,51,250 - - By N’s Current 25,000 - -
A/c– transfer A/c–
Revaluation
profit
By O’s Current 12,500
A/c –
Revaluation
profit

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By Joint
assurance
policy 7,500 5,000 2,500
By Balance c/d 20,000 41,250
1,51,250 62,500 43,750 1,51,250 62,500 43,750
1.4.21 31.3.22
To Balance b/d 20,000 41,250 By Profit & Loss 29,280 14,640
31.3.22 Appropriation
A/c (43,920)
To Drawings A/c 18,750 10,000 By Balance c/d 9,470 36,610
38,750 51,250 38,750 51,250
1.4.22 1.4.22
To Balance b/d 9,470 36,610 By Realization 38,137 19,068
A/c -profit
To N’s Capital By O’s Capital
A/c-transfer 28,667 - A/c - transfer - 17,542
38,137 36,610 38,137 36,610

Partners’ Capital Accounts

Particulars M N O Particulars M N O
` ` ` ` ` `
31.3.21 31.3.21
To M’s Executors 2,26,250 ---- --- By Balance b/d 75,000 50,000 25,000
A/c
To Balance c/d --- 50,000 25,000 By M’s Current 1,51,250 -- --
A/c
2,26,250 50,000 25,000 2,26,250 50,000 25,000
31.3.22 1.4.21
To Balance c/d 50,000 25,000 By Balance b/d 50,000 25,000
50,000 25,000 50,000 25,000
1.4.22 1.4.22
To O’s Current A/c --- By Balance b/d 50,000 25,000
– transfer 17,542
30.6.22
To Bank A/c By N’s Current
78,667 7,458 A/c – transfer 28,667 ---
78,667 25,000 78,667 25,000

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 16 INTERMEDIATE EXAMINATION: NOVEMBER, 2022

M’s Executor’s Account

Date Particulars Amount Date Particulars Amount
31.3.2021 To Balance c/d 2,26,250 31.3.2021 By M’s Capital 2,26,250
2,26,250 A/c 2,26,250
1.4.2021 To Bank 37,500 1.4.2021 By Balance b/d 2,26,250
30.9.2021 To Bank 37,500 30.9.2021 By Interest A/c 11,325
30.9.2021 To Balance c/d 1,62,575 (12% p.a. for 6 -----------
2,37,575 months) 2,37,575
31.3.2022 To Bank 37,500 1.10.2021 By Balance b/d 1,62,575
31.3.2022 To Balance c/d 1,34,830 31.3.2022 By Interest A/c 9,755
(12% p.a. for 6 ------------
1,72,330 months) 1,72,330
30.6.2022 To Bank 1,38,875 1.4.2022 By Balance b/d 1,34,830
30.6.2022 By Interest 4,045
----------- (12% p.a. for 3 -----------
1,38,875 months) 1,38,875
Working Notes:
(1) Adjustment in regard to Goodwill
Partners M N O
Share of goodwill before death (`) 56,250 37,500 18,750
Share of goodwill after death (`) - 75,000 37,500
Gain (+)/Sacrifice (-) (`) (56,250) 37,500 18,750
Cr. Dr. Dr.
(2) Adjustment in regard to revaluation of assets
Partners M N O
Share of profit on revaluation credited (`) 37,500
to all the partners (75,000 in 3:2:1) 25,000 12,500
Debited to the continuing partners (`) - 50,000 25,000
(`) (37,500) 25,000 12,500
Cr. Dr. Dr.

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(3) Ascertainment of Profit for the year ended 31.3.22

` `
Profit before charging interest on balance due to M’s 65,000
executors
Less: Interest payable to M’s executors:
From 1.4.21 to 30.9.21 11,325
From 1.10.21 to 31.3.22 9,755 (21,080)
Balance of profit to be shared by N and O in 2:1 43,920
(4) Ascertainment of Sundry Assets as on 31.3.22
Liabilities ` Assets `
Capital Account – N 50,000 Sundry Assets (balancing figure) 1,63,750
Capital Account – O 25,000 Partner’s Current A/c – N 9,470
M’s Executors A/c 1,34,830 Partner’s Current A/c- O 36,610
2,09,830 2,09,830
(5) Realization Account
` `
To Sundry Assets A/c 1,63,750 By Bank A/c (purchase 2,25,000
To Interest A/c– M’s Executors 4,045 consideration)
To Partner’s Current A/c – N {38,137
To Partner’s Current A/c – O 19,068}
2,25,000 2,25,000
(6) Bank Account
` `
To Purchase consideration 2,25,000 By M’s Executors A/c 1,38,875
By Partner’s Capital - N 78,667
By Partner’s Capital - O 7,458
2,25,000 2,25,000
Note:
1. As per the information given in the question, Interest @ 6% was to be credited half -
yearly to M’s executor’s account. Hence the rate of 12% per annum has been
considered in the solution while working the interest computations.

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 18 INTERMEDIATE EXAMINATION: NOVEMBER, 2022

2. Interest computations have been rounded off.

(b) Distinction between an ordinary partnership firm and an LLP
Basis LLP Partnership firm
1. Applicable law The Limited Liability The Indian Partnership Act,
Partnership Act, 2008. 1932.
2. Perpetual The death, insanity, The death, insanity, retirement
succession retirement or insolvency of or insolvency of the partner(s)
the partner(s) does not may affect its existence. It has
affect its existence of LLP. no perpetual succession.
Members may join or leave
but its existence continues
forever.
3 Ownership of The LLP as an independent Firm cannot own any assets.
assets entity can own assets The partners own the assets of
the firm
4. Liability of Liability of each partner is Liability of each partner is
Partners/ limited to the extent to unlimited. Partners are
Members agreed contribution except severally and jointly liable for
in case of willful fraud. actions of other partners and
the firm and their liability
extends to personal assets
5. Principal-agent Partners are agents of the Partners are the agents of the
relationship firm only and not of other firm and of each other
partners.
Question 5
(a) Following information of RJS Bank Limited for the year ended 31 st March, 2022 are as
under:
Particulars ` in ‘000
Total interest earned and received on term loans 6375.00
Interest earned on term loans classified as NPA 1827.50
Interest received on term loans classified as NPA 595.00
Total interest earned on cash credits and overdrafts 14157.50
Interest earned but not received on cash credits and overdrafts treated 2307.50
as NPA
Interest on Deposits 10300.00
Commission, exchange and brokerage 502.50
Profit on sale of Investments 4690.00

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Profit on revaluation of Investments 855.00

Income from Investments 5435.00
Payment to and provision for employees 6862.50
Rent, Taxes and Lighting 962.50
Printing and Stationery 155.00
Director’s fees, allowances and expenses 782.50
Repairs and Maintenance 140.00
Depreciation on Bank’s property 247.50
Insurance 107.50
Classification of Assets:
Particulars `
Standard [including advances to Commercial Real Estate (CRE) sector 11,750
` 17,50,000]
Sub-standard (fully secured) 4,750
Doubtful Assets not covered by security 1,000
Doubtful Assets covered by security for 1 year 100
Loss Assets 750

You are required to prepare Profit and Loss account of RJS Bank Limited including
Schedules for the year ended 31 stMarch, 2022 and calculate provision required to be made
on Risk Assets. (15 Marks)
(b) Proud Limited is being wound up by the tribunal. All the assets of the company have been
charged to the company's banker to whom the company owes ` 10 crores. The company
owes the following amounts to others:
(i) Dues to workers-` 2,50,00,000
(ii) Taxes payable to Government-` 60,00,000
(iii) Unsecured Creditors-` 1,20,00,000
You are required to compute with the reference to the provisions of the Companies Act,
2013 the amount each kind of creditors is likely to get if the amount realized by the official
liquidator from the secured assets and available for distribution among creditors is only
` 8,00,00,000. (5 Marks)

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 20 INTERMEDIATE EXAMINATION: NOVEMBER, 2022

Answer
(a) RJS Bank
Profit and Loss Account
For the year ended 31st March, 2022
Particulars Schedule (` ’000’)
Year ended
31-3-2022
I Income
Interest earned 13 23,660.00
Other income 14 6,047.50
29,707.50
II Expenditure
Interest expended 15 10,300.00
Operating expenses 16 9,257.50
Provisions and Contingencies (refer W.N) 2,545
22,102.50
III Profit/Loss 7,605.00
Schedule 13 - Interest Earned
Year ended
31-3-2022
(` ’000’)
I Interest/discount on advances/bills
Interest on term loans * 6,375.00
Interest on cash credits and overdrafts (14157.50-2307.50) 11,850.00
II Income on investments 5,435.00
23,660.00
Schedule 14 - Other Income
Year ended
31-3-2022
(` ’000’)
Commission, exchange and brokerage 502.50

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Profit on sale of investments 4690

Profit on revaluation of investments 855
6047.50
Schedule 15 - Interest Expended
Year ended
31-3-2022
I Interest on Deposits 10,300
Schedule 16 - Operating Expenses
Year Ended
31-3-2022
I Payment and provision for employees
Salaries, allowances and bonus 6862.50
II Rent, taxes and lighting 962.50
III Printing & stationery 155.00
IV Director’s fee, allowances and expenses 782.50
V Depreciation on the Bank’s Property 247.50
VI Repairs & maintenance 140.00
VII Insurance 107.50
9,257.50
Working Note:
Calculation of Provisions amount on risk assets (` ’000)
Provision for NPA:
Standard (excluding advances to Commercial Real Estate 10,000 × 0.40%
(CRE) Sector 11,750-1,750) 40
Standard - advances to Commercial Real Estate (CRE) 1,750 x 1% 17.5
Sub-standard- fully secured 4750 × 15% 712.5
Doubtful assets not covered by security 1,000 × 100% 1000
Doubtful covered by security for one year 100 × 25% 25
Loss Assets 750 × 100% 750
2,545

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 22 INTERMEDIATE EXAMINATION: NOVEMBER, 2022

Note: *The amount of total interest earned and received on term loans amounting `
63,75,000 is given in the question. It has been assumed in the given answer that this
amount does not include any amount of interest earned but not received on term loans
(classified as NPA). Hence no adjustment for the amount of interest earned but not
received on term loans (classified as NPA) has been done. Alternatively, it may be
assumed that the amount of total interest earned and received on term loans amounting
` 63,75,000 is inclusive of interest amount earned but not received on term loans classified
as NPA. In this case, the Profit and Loss Account and Schedule 13 will be changed and
will be given as follows (Schedules 14 to 16 and Working Note will remain same):
RJS Bank
Profit and Loss Account
For the year ended 31st March, 2022
Particulars Schedule Year ended
31-3-2022
(` ’000’)
I Income
Interest earned 13 22,427.50
Other income 14 6,047.50
28,475
II Expenditure
Interest expended 15 10,300.00
Operating expenses 16 9,257.50
Provisions and Contingencies (refer W.N) 2,545
22,102.50
III Profit/Loss 6,372.50
Schedule 13 - Interest Earned
Year ended
31-3-2022
(` ’000’)
I Interest/discount on advances/bills
Interest on term loans [6375- (1827.50-595)] 5,142.50
Interest on cash credits and overdrafts (14157.50-2307.50) 11,850.00
II Income on investments 5,435.00
22,427.50

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 PAPER – 5 : ADVANCED ACCOUNTING 23

Interest on NPA is recognized on cash basis, hence excess reduced.

(b) Section 326 of the Companies Act, 2013 talks about the overriding preferential payments
to be made from the amount realized from the assets to be distributed to various kind of
creditors. According to the proviso given in the section 326 the security of ev ery secured
creditor should be deemed to be subject to a pari-passu change in favor of the workman
to the extent of their portion.
Amount Realized X Workman' s Dues
Workman' s Share to Secured Asset =
Workman' s Dues +Secured Loan
8,00,00,000 X 2,50,00,000
=
2,50,00,000 +10,00,00,000

1
8,00,00,000 X 5

Workman' s Share to Secured Assets = `1,60,00,000

Amount available to secured creditor is ` 800 Lakhs – `160 Lakhs = ` 640 Lakhs
Hence, no amount is available for payment of government dues and unsecured
creditors.
Question 6
Answer any four of the following:
(a) Indicate in each case whether revenue can be recognized and when it will be recognized
as per AS-9.
(i) Delivery is delayed at buyer's request but buyer takes title and accepts billing.
(ii) Instalment Sales.
(iii) Trade discounts and volume rebates.
(iv) Insurance agency commission for rendering services.
(v) Advertising commission.
(b) PG Limited furnishes the following Balance Sheet as at 31 st March,2022:
Particulars Notes ` (in Lakhs)
1. Equity and Liabilities
Shareholders’ funds
(a) Share Capital 1 12,000
(b) Reserves and Surplus 2 8,100
2 Current liabilities
(a) Trade Payables 7,450

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 24 INTERMEDIATE EXAMINATION: NOVEMBER, 2022

(b) Other Current Liabilities 1,950

Total 29,500
Assets
1 Non-current assets
(a) Property, Plant and Equipment 12,760
(b) Non-current Investments 740
2. Current assets
(a) Inventories 6,000
(b) Trade receivables 2,600
(c) Cash and cash equivalents 7,400
Total 29,500
Notes to accounts:
Particulars ` (in Lakhs)
1. Share Capital
Authorized, issued and subscribed capital
Equity share capital (fully paid up shares of ` 10 each) 12,000
2. Reserves and Surplus
Securities premium 1,750
General reserve 2,650
Capital redemption reserve 2,000
Profit and Loss account 1,700
Total 8,100
On 1stApril, 2022, the company announced the buy-back of 25% of its Equity Shares @
` 15 per share. For this purpose, it sold all of is investments for ` 750 lakhs.
On 5thApril, 2022, the company achieved the target of buy-back You are required to pass
necessary journal entries for the above transactions.
(c) At the beginning of year 1, an enterprise grants 1,000 stock options t o a senior executive,
conditional upon the executive remaining in the employment of the enterprise until the end
of year 3. The exercise price is ` 400. However, the exercise price drops to ` 300 if the
earnings of the enterprise increase by at-least an average of 10 percent per year over the
three-year period.
On the grant date, the enterprise estimates that the fair value of the stock options, with an
exercise price of ` 300, is ` 160 per option. If the exercise price is ` 400, the enterprise
estimates that the stock options have a fair value of ` 120 per option.

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During year 1, the earnings of the enterprise increased by 12 percent, and the enterprise
expects that earnings will continue to increase at this rate over the nex t two years. The
enterprise, therefore, expects that the earnings target will be achieved, and hence the
stock options will have an exercise price of ` 300.
During year 2, the earnings of the enterprise increased by 13 percent, and the enterprise
continues to expect that the earnings target will be achieved.
During year 3, the earnings of the enterprise increased by only 3 percent, and therefore
the earnings target was not achieved. The executive completes three years' service, and
therefore satisfies the service condition. Because the earnings target was not achieved,
the 1,000 vested stock options have an exercise price of ` 400, You are required to
calculate the amount to be charged to Profit and Loss Account every year on account of
compensation expenses.
(d) At the end of the financial year ending on 31 stMarch, 2022, a company finds that there are
twenty law suits outstanding which have not been settled till the date of approval of
accounts by the Board of Directors. The possible outcome as estimated by the Board is as
follows:
Particulars Probability Loss (`)
In respect of five cases (Win) 100% -
Next ten cases (Win) 50% -
Lose (Low damages) 40% 12,00,000
Lose (High damages) 10% 20,00,000
Remaining five cases Win 50% -
Lose (Low damages) 30% 10,00,000
Lose (High damages) 20% 21,00,000
Outcome of each case is to be taken as a separate entity. Ascertain the amount of
contingent loss and the accounting treatment in respect thereof as per AS - 29.
(e) Star Limited agreed to take over Moon Limited on 1st April,2022. The terms and conditions
of takeover were as follows:
(i) Star Limited issued 70,000 Equity shares of ` 100 each at a premium of ` 10 per
share to the equity shareholders of Moon Limited.
(ii) Cash payment of ` 1,25,000 was made to the equity shareholders of Moon Limited.
(iii) 25,000 fully paid Preference shares of ` 70 each issued at par to discharge the
preference shareholders of Moon Limited.
You are required:
(i) to give the meaning of "consideration for the amalgamation' as per AS-14, and
(ii) Calculate the amount of purchase consideration. (4 parts x 5 Marks = 20 Marks)

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 26 INTERMEDIATE EXAMINATION: NOVEMBER, 2022

Answer
(a) (i) Delivery is delayed at buyer’s request and buyer takes title and accepts billing :
Revenue should be recognized notwithstanding that physical delivery has not been
completed so long as there is every expectation that delivery will be made. However,
the item must be on hand, identified and ready for delivery to the buyer at the time
the sale is recognized rather than there being simply an intention to acquire or
manufacture the goods in time for delivery.
(ii) Instalment sales: When the consideration is receivable in instalments, revenue
attributable to the sales price exclusive of interest should be recognized at the date
of sale. The interest element should be recognized as revenue, proportionately to the
unpaid balance due to the seller.
(iii) Trade discounts and volume rebates: Trade discounts and volume rebates
received are not encompassed within the definition of revenue, since they represent
a reduction of cost. Trade discounts and volume rebates given should be deducted in
determining revenue.
(iv) Insurance agency commissions for rendering services: Insurance agency
commissions should be recognized on the effective commencement or renewal dates
of the related policies.
(v) Advertising commission: Revenue should be recognized when the service is
completed. For advertising agencies, media commissions will normally be recognized
when the related advertisement or commercial appears before the public and the
necessary intimation is received by the agency, as opposed to production
commission, which will be recognized when the project is completed.
(b) In the books of PG Limited
Journal Entries
Date Particulars Dr. Cr.
2022 (` in lakhs)
April 1 Bank A/c Dr. 750
To Investment A/c 740
To P& L A/c (Profit on sale of investment) 10
(Being investment sold on profit)
April 5 Equity share capital A/c Dr. 3,000
Premium payable on buy-back A/c Dr. 1,500
To Equity shares buy-back A/c 4,500
(Being the amount due to equity shareholders on buy-
back)

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 PAPER – 5 : ADVANCED ACCOUNTING 27

Securities Premium A/c Dr. 1,500

To Premium payable on buy-back A/c 1,500
(Being the amount of premium charged from securities
premium account)
Equity shares buy-back A/c Dr. 4,500
To Bank A/c 4,500
(Being the payment made on account of buy-back of 30
Lakh Equity Shares)
April 5 Profit and Loss A/c Dr. 1,700
General reserve A/c Dr. 1,300
To Capital redemption reserve A/c 3,000
(Being amount equal to nominal value of buy-back shares
from free reserves transferred to capital redemption
reserve account as per the law)
Note: 1. In the last entry given in the solution, it is possible to adjust transfer to Capital
Redemption Reserve Account from different combinations of amounts from Securities
Premium, General Reserve and Profit and Loss Account to the extent available.
2. Calculation of amount of Buy Back of Share: `12,000/10 X 25% X ` 15 = ` 4,500 Lakhs
(c) Since the exercise price varies depending on the outcome of a performance condition
which is not a market condition, the effect of that performance condition (i.e. the possibility
that the exercise price might be `400 and the possibility that the exercise price might be
`300) is not considered when estimating the fair value of the stock options at the grant
date. Instead, the enterprise estimates the fair value of the stock options at the grant date
under each scenario and revises the transaction amount to reflect the outcomes of that
performance condition at the end of every year based on the information available at that
point of time.
Calculation of compensation expense to be charged every year:
Year Calculation Cumulative expense Expense for the year
(` ) (` )
1 1,000 x ` 160 x 1/3 53,333 53,333
2 1,000 x ` 160 x 2/3 1,06,667 (1,06,667 - 53,333) 53,334
3 1,000 x ` 120 x 3/3 1,20,000 (1,20,000 - 1,06,667) 13,333
(d) According to AS 29 (Revised) ‘Provisions, Contingent Liabilities and Contingent Assets’,
contingent liability should be disclosed in the financial statements if following conditions
are satisfied:

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(i) There is a present obligation arising out of past events but not recognized as
provision.
(ii) It is not probable that an outflow of resources embodying economic benefits will be
required to settle the obligation.
(iii) The possibility of an outflow of resources embodying economic benefits is not remote.
(iv) The amount of the obligation cannot be measured with sufficient reliability to be
recognized as provision.
In this case, the probability of winning of first five cases is 100% and hence, question of
providing for contingent loss does not arise. The probability of winning of next ten cases
is 50% and for remaining five cases is 50%. As per AS 29 (Revised), we make a provision
if the loss is probable. As the loss does not appear to be probable and the possibility of
an outflow of resources embodying economic benefits is remote, therefore disclosure by
way of note should be made. For the purpose of the disclosure of contingent liability by
way of note, amount may be calculated as under:
Expected loss in next ten cases = 40% of ` 12,00,000 + 10% of ` 20,00,000
= ` 4,80,000 + ` 2,00,000
= 6,80,000
Expected loss in remaining five cases = 30% of ` 10,00,000 + 20% of ` 21,00,000
= ` 3,00,000 + ` 4,20,000
= ` 7,20,000
To disclose contingent liability on the basis of maximum loss will be highly unrealistic.
Therefore, the better approach will be to disclose the overall expected loss of 1,04,00,000
(` 6,80,000  10 + ` 7,20,000  5) as contingent liability.
(e) Consideration for the amalgamation means the aggregate of the shares and other
securities issued and the payment made in the form of cash or other assets by the
transferee company to the shareholders of the transferor company.
Computation of Purchase consideration (` ) Form
For Preference Shareholders of Moon Ltd. 17,50,000 25,000
(25,000 × ` 70) Preference
For equity shareholders of Moon Ltd. 77,00,000 70,000
(70,000 × ` 110) Equity shares of Star Ltd.
1,25,000 Cash
Total Purchase consideration 95,75,000

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 PAPER – 5: ADVANCED ACCOUNTING
Question No.1 is compulsory.
Candidates are also required to answer any four questions from the remaining five questions.
Working notes should form part of the respective answers.
Wherever necessary, candidates are permitted to make suitable assumptions which should be
disclosed by way of a note.
Question 1
(a) TQ Cycles Ltd. is in the manufacturing of bicycles, a labour intensive manufacturing sector.
In April 2022, the Government enhanced the minimum wages payable to workers with
retrospective effect from the 1 st January,2022. Due to this legislative change, the additional
wages for the period from January 2022 to March 2022 amounted to ` 30 lakhs. The
management asked the Finance manager to charge ` 30 lakhs as prior period item while
finalizing financial statements for the year 2022-23. Further, the Finance manager is of the
view that this amount being abnormal should be disclosed as extra-ordinary item in the
Profit and loss account for the financial year 2021-22.
Discuss with reference to applicable Accounting Standards.
(b) NAT, a listed entity, as on 1 st April,2021 had the following capital structure:
`
10,00,000 Equity Shares having face value of ` 1 each 10,00,000
10,00,000 8% Preference Shares having face value of ` 10 each 1,00,00,000
During the year 2021-2022, the company had profit after tax of ` 90,00,000
On 1st January,2022, NAT made a bonus issue of one equity share for every 2 equity
shares outstanding as at 31 st December,2021.
On 1st January,2022, NAT issued 2,00,000 equity shares of ` 1 each at their full market
price of ` 7.60 per share.
NAT's shares were trading at ` 8.05 per share on 31 st March,2022.
Further it has been provided that the basic earnings per share for the year en ded
31st March,2021 was previously reported at ` 62.30.
You are required to:
(i) Calculate the basic earnings per share to be reported in the financial statements of
NAT for the year ended 31 st March,2022 including the comparative figure, in
accordance with AS-20 Earnings Per Share.
(ii) Explain why the bonus issue of shares and the shares issue at full market price are
treated differently in the calculation of the basic earnings per share?

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 2 INTERMEDIATE EXAMINATION: MAY, 2022

(c) Alloy Fabrication Limited is engaged in manufacturing of iron and steel rods. The company
is in the process of finalisation of the accounts for the year ended 31 st March,2022 and
needs your advice on the following issues in line with the provisions of AS -29:
(i) On 1stApril,2019, the company installed a huge furnace in their plant. The furnace has
a lining that needs to be replaced every five years for technical reasons. At the
Balance Sheet date 31 st March,2022, the company does not provide any provision for
replacement of lining of the furnace.
(ii) A case has been filed against the company in the consumer court and a notice for
levy of a penalty of ` 50 Lakhs has been received. The company has appointed a
lawyer to defend the case for a fee of ` 5 Lakhs. 60% of the fees have been paid in
advance and rest 40% will be paid after finalization of the case. There are 70%
chances that the penalty may not be levied.
(d) Grace Ltd., a firm of contractors provided the following information in respect of a contract
for the year ended on 31 st March,2022:
Particulars (` in ‘000)
Fixed Price Contract with an escalation clause 35,000
Work Certified 17,500
Work not Certified (includes ` 26,25,000 for materials issued, out of 3,815
which material lying unused at the end of the period is ` 1,40,000)
Estimated further cost to completion
Progress Payment Received 17,325
Payment to be Received 14,000
Escalation in cost is by 8% and accordingly the contract price is 4,900
increased by 8%
From the above information, you are required to:
(i) Compute the contract revenue to be recognized.
(ii) Calculate Profit /Loss for the year ended 31 st March,2022 and additional provision for
loss to be made, if any, for the year ended 31 st March,2022.
(4 Parts X 5 Marks = 20 Marks)
Answer
(a) As per AS 5 “Net Profit or Loss for the Period, Prior Period Items and Changes in
Accounting Policies” prior period items are income or expenses which arise in the current
period as a result of errors or omissions in the preparation of the financial statem ents of
one or more prior periods. The term does not include other adjustments necessitated by
circumstances which though related to prior periods, are determined in the current period.

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It is given that revision of wages took place in April, 2022 with retrospective effect from
1st January, 2022. Therefore, wages payable for the period from 1.01.2022 to 31.3.2022
cannot be taken as an error or omission in the preparation of financial statements and
hence this expenditure cannot be taken as a prior period item. The full amount of wages
payable to workers will be treated as an expense of current year and it will be charged to
profit & loss account for the year 2022-23 as normal expenses.
It may be mentioned that additional wages is an expense arising from the ordinary activities
of the company. Such an expense does not qualify as an extraordinary item. Therefore,
finance manager is incorrect in treating increase as extraordinary item. However, as per
AS 5, when items of income and expense within profit or loss from ordinary activities are
of such size, nature or incidence that their disclosure is relevant to explain the performance
of the enterprise for the period, the nature and amount of such items should be disclosed
separately.
Therefore, additional wages liability of ` 30 lakhs should be disclosed separately in the
financial statements of TQ Cycles Ltd. for the year ended 31 stMarch, 2023.
(b) (i) Calculation of Basic Earnings per share for the year ended 31 stMarch, 2022 including
the comparative figure:
(a) Earnings for the year ended 31 st March, 2021 = EPS x Number of shares
outstanding during 2020-2021
= ` 62.30 x 10,00,000 equity shares
= ` 6,23,00,000
(b) Adjusted Earnings per share after taking into consideration bonus issue
Adjusted Basic EPS = Earnings for the year 2020-2021 / Total outstanding
shares +Bonus issue
= ` 6,23,00,000 / (10,00,000+ 5,00,000)
= ` 6,23,00,000 / 15,00,000
= ` 41.53 per share
(c) Basic EPS for the year 2021-2022
Basic EPS = Total Earnings – Preference Shares Dividend) / (Total shares
outstanding at the beginning + Bonus issue + weighted average of the shares
issued in January, 2022)
= (` 90,00,000 – ` (1,00,00,000 x 8%) / (10,00,000 + 5,00,000 + (2,00,000 x
3/12))
= ` 82,00,000 / 15,50,000 shares
= ` 5.29 per share

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(ii) In case of a bonus issue, equity shares are issued to existing shareholders for no
additional consideration. Therefore, the number of equity shares outstanding is
increased without an increase in resources. Since the bonus issue is an issue without
consideration, the issue is treated as if it had occurred prior to the beginning of the
year 2021, the earliest period reported.
However, the share issued at full market price does not carry any bonus element and
usually results in a proportionate change in the resources available to the enterprise.
Therefore, it is taken into consideration from the time it has been issued i.e. the time -
weighting factor is considered based on the specific shares outstanding as a
proportion of the total number of days in the period.
(c) (i) A provision should be recognized only when an enterprise has a present obligation
arising from a past event or obligation. In the given case, there is no present
obligation but a future one, therefore no provision is recognized as per AS 29. The
cost of replacement of lining of furnace is not recognized as a provision because it is
a future obligation. Even a legal requirement does not require the company to make
a provision for the cost of replacement because there is no present obligation. Even
the intention to incur the expenditure depends on the company deciding to continue
operating the furnace or to replace the lining.
(ii) As per AS 29, an obligation is a present obligation if, based on the evidence available,
its existence at the balance sheet date is considered probable, i.e., more likely than
not. Liability is a present obligation of the enterprise arising from past event s, the
settlement of which is expected to result in an outflow from the enterprise of resources
embodying economic benefits.
In the given case, there are 70% chances that the penalty may not be levied.
Accordingly, Alloy Fabrication Ltd. should not make the provision for penalty. The
matter is disclosed as a contingent liability unless the probability of any outflow is
regarded as remote.
However, a provision should be made for remaining 40% fees of the lawyer amounting
` 2,00,000 in the financial statements of financial year 2021-2022.
(d) Calculation of total estimated cost of construction
` in thousand
Cost of Contract incurred till date
Work certified 17,500
Work not certified (3,815 thousand – 140 thousand) 3,675 21,175
Add: Estimated future cost 17,325
Total estimated cost of construction 38,500
Contract Price (35,000 thousand x 1.08) 37,800

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 PAPER – 5 : ADVANCED ACCOUNTING 5

Stage of completion
Percentage of completion till date to total estimated cost of construction = [Cost of work
completed till date / total estimated cost of the contract] x 100
= [` 21,175 thousand / ` 38,500 thousand] x 100= 55%
Revenue to be recognized for the year ended 31 stMarch, 2022
Proportion of total contract value recognized as revenue = Contract price x percentage of
completion = ` 37,800 thousand x 55% = ` 20,790 thousand
Loss to be recognized for the year ended 31 stMarch, 2022
Loss for the year ended 31 stMarch, 2022 = Cost incurred till date – Revenue to be
recognized for the year ended 31 st March, 2022
= ` 21,175 thousand – ` 20,790 thousand = ` 385 thousand
Provision for loss to be made at the end of 31 stMarch, 2022
` in thousand
Total estimated loss on the contract
Total estimated cost of the contract 38,500
Less: Total revised contract price (37,800) 700
Less: Loss recognized for the year ended 31 st March, (385)
2022
Provision for loss to be made at the end of 31 stMarch, 315
2022
Question 2
The summarized Balance Sheet of A Ltd. and B Ltd. as at 31 st March,2022 are as under:
A Ltd. (in `) B Ltd. (in `)
Equity shares of `10 each, fully paid up 30,00,000 24,00,000
Securities Premium Account 4,00,000
General Reserve 6,20,000 5,00,000
Profit and Loss Account 3,60,000 3,20,000
Retirement Gratuity Fund Account 1,00,000
10% Debentures 20,00,000
Unsecured Loan (including loan from A Ltd.) 6,00,000 8,20,000
Trade Payables 1,00,000 3,40,000
71,80,000 43,80,000
Land and Buildings 28,00,000 21,00,000
Plant and Machinery 20,00,000 7,60,000

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 6 INTERMEDIATE EXAMINATION: MAY, 2022

Long term advance to B Ltd. 2,20,000

Inventories 10,40,000 7,00,000
Trade Receivables 8,20,000 5,20,000
Cash and Bank 3,00,000 3,00,000
71,80,000 43,80,000

B Ltd. is to declare and pay ` 1 per equity share as dividend, before the following amalgamation
takes place with Z Ltd.
Z Ltd. was incorporated to take over the business of both A Ltd. and B Ltd.
(a) The authorized share capital of Z Ltd. is ` 60 lakhs divided into ` 6 lakhs equity shares of
` 10 each.
(b) As per Registered Valuer the value of equity shares of A Ltd. is ` 18 per share and of B
Ltd. is ` 12 per share respectively and agreed by respective shareholders of the
companies.
(c) 10% Debentures of A Ltd. to be issued 12% Debentures of Z Ltd. at par in consideration
of their holdings.
(d) A contingent liability of A Ltd. of ` 2,00,000 is to be treated as actual liability.
(e) Liquidation expenses including Registered Valuer fees of A Ltd.` 50,000 and B Ltd.
` 30,000 respectively to be borne by Z Ltd.
(f) The shareholders of A Ltd. and B Ltd. is to be paid by issuing sufficient number of fully
paid up equity shares of ` 10 each at a premium of ` 10 per share.
Assuming amalgamation in the nature of purchase, you are required to pass the necessary
journal entries (narrations not required) in the books of Z Ltd. and Prepare Balance Sheet of Z
Ltd. immediately after amalgamation of both the companies. (20 Marks)
Answer
Journal Entries in the books of Z Ltd.
` `
Business Purchase A/c Dr. 54,00,000
To Liquidator of A Ltd. A/c 54,00,000
Land & Building A/c Dr. 28,00,000
Plant & Machinery A/c Dr. 20,00,000
Long term advance to B Ltd. A/c Dr. 2,20,000
Inventories A/c Dr. 10,40,000
Trade Receivables A/c Dr. 8,20,000

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Cash and Bank A/c Dr. 3,00,000

Goodwill A/c Dr. 12,20,000
To Retirement Gratuity Fund A/c 1,00,000
To 10% Debentures A/c 20,00,000
To Unsecured Loan A/c 6,00,000
To Trade Payables A/c 1,00,000
To Other liabilities A/c 2,00,000
To Business Purchase A/c 54,00,000
10% Debentures A/c Dr. 20,00,000
To 12% Debentures A/c 20,00,000
Liquidator of A Ltd. A/c Dr. 54,00,000
To Equity Share Capital A/c 27,00,000
To Securities Premium A/c 27,00,000
Business Purchase A/c Dr. 28,80,000
To Liquidator of B Ltd. A/c 28,80,000
Land and Building A/c Dr. 21,00,000
Plant & Machinery A/c Dr. 7,60,000
Inventories A/c Dr. 7,00,000
Trade Receivables A/c Dr. 5,20,000
Cash and Bank (less dividend) A/c Dr. 60,000
To Unsecured Loan A/c 8,20,000
To Trade Payables A/c 3,40,000
To Business Purchase A/c 28,80,000
To Capital Reserve A/c 1,00,000
Liquidators of B Ltd. A/c Dr. 28,80,000
To Equity Share Capital A/c 14,40,000
To Securities Premium A/c 14,40,000
Unsecured Loans A/c Dr. 2,20,000
To Long term Advance to B Ltd. A/c 2,20,000
*Capital Reserve A/c Dr. 1,00,000
To Cash and Bank A/c (Liquidation expenses) 80,000
To Goodwill A/c 20,000

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 8 INTERMEDIATE EXAMINATION: MAY, 2022

Note:
1. The journal entries for A Ltd. and B Ltd. have been given separately in the above solution.
Alternatively, the entries may be given as combined for both companies.
2. *Alternatively, following set of entries may be given in place of the last entry given in the
above solution:

Goodwill A/c Dr. 50,000

To Cash & Bank A/c (Liquidation expenses of A Ltd.) 50,000
Capital Reserve A/c Dr. 30,000
To Cash and Bank A/c (Liquidation expenses of B Ltd.) 30,000
Capital Reserve A/c Dr. 70,000
To Goodwill A/c 70,000
Balance Sheet of Z Ltd. as at 31 st March, 2022
Particulars Note No. (`)
I. Equity and Liabilities
(1) Shareholder's Funds
(a) Share Capital 1 41,40,000
(b) Reserves and Surplus 2 41,40,000
(2) Non-Current Liabilities
(a) Long-term borrowings 3 20,00,000
(b) Long term provisions 4 1,00,000
(3) Current Liabilities
(a) Short-term borrowings 1 5 12,00,000
(b) Trade payables 6 4,40,000
(a) Other liability 2,00,000
Total 1,22,20,000
II. Assets
(1) Non-current assets
(a) i. Property, plant and equipment 7 76,60,000

1Unsecured loans have been considered as short-term borrowings. Alternatively, it may be considered
as long-term borrowings and presented accordingly.

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 PAPER – 5 : ADVANCED ACCOUNTING 9

ii. Intangible assets 12,00,000

(Goodwill 12,20,000-20,000)
(2) Current assets
(a) Inventories 8 17,40,000
(b) Trade receivables 9 13,40,000
(c) Cash and cash equivalents 10 2,80,000
Total 1,22,20,000

Notes to Accounts
(`) (`)
1. Share Capital
Authorized Share Capital
6,00,000 Equity shares of ` 10 each 60,00,000
Issued: 4,14,000 Equity shares of ` 10 each 41,40,000
(all these shares were Issued for consideration
other than cash)
2. Reserves and surplus
Securities Premium Account
(4,14,000 shares × ` 10) 41,40,000
3. Long-term borrowings
12% Debentures 20,00,000
4 Long term Provisions
Retirement gratuity fund 1,00,000
5. Short-term borrowings
Unsecured loans
A Ltd. 6,00,000
B Ltd. 8,20,000 14,20,000
Less: Mutual (2,20,000) 12,00,000
6. Trade payables
A Ltd. 1,00,000
B Ltd. 3,40,000 4,40,000

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 10 INTERMEDIATE EXAMINATION: MAY, 2022

7. Property, plant & equipment

Land and Building
A Ltd. 28,00,000
B Ltd. 21,00,000 49,00,000
Plant and Machinery
A Ltd. 20,00,000
B Ltd. 7,60,000 27,60,000
76,60,000
8. Inventories
A Ltd. 10,40,000
B Ltd. 7,00,000 17,40,000
9 Trade receivables
A Ltd. 8,20,000
B Ltd. 5,20,000 13,40,000
10 Cash & cash equivalents
A Ltd. 3,00,000
B Ltd. [3,00,000-2,40,000(dividend)] 60,000
3,60,000
Less: Liquidation Expenses (80,000) 2,80,000

Working Note:
Calculation of amount of Purchase Consideration

A Ltd. B Ltd.
Existing shares 3,00,000 2,40,000
Agreed value per share ` 18 ` 12
Purchase consideration 54,00,000 28,80,000
No. of shares to be issued of ` 20 each (including ` 10 premium) 2,70,000 1,44,000
Face value of shares at ` 10 27,00,000 14,40,000
Premium of shares at ` 10 27,00,000 14,40,000

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 PAPER – 5 : ADVANCED ACCOUNTING 11

Question 3
(a) White Ltd. acquired 2,250 shares of Black Ltd. on 1 st October,.2020. The summarized
balance sheets of both the companies as on 31 st March, 2021 are given below:
White Ltd. ( `) Black Ltd. ( `)
(I) Equity and Liabilities
(1) Shareholder's fund
Share capital (Equity shares of ` 100
each fully paid up) 6,50,000 3,00,000
Reserves and Surplus
General Reserve 60,000 30,000
Profit and loss account 1,50,000 90,000
(2) Current Liabilities
Trade payables 1,15,000 75,000
Due to White Ltd. - 30,000
Total 9,75,000 5,25,000
(II) Assets:
Non-current assets
Property, Plant and Equipment 5,80,000 3,51,000
Investments
Shares in Black Ltd. (2,250 shares) 2,70,000
Current assets
Inventories 50,000 1,20,000
Due from Black Ltd. 36,000
Cash and Cash equivalents 39,000 54,000
Total 9,75,000 5,25,000

Other information:
(i) During the year, Black Limited fabricated a machine, which is sold to White Ltd. for
` 39,000, the transaction being completed on 30 th March,2021.
(ii) Cash in transit from Black Ltd. to White Ltd. was ` 6,000 on 31 st March,2021.
(iii) Profits during the year 2020-2021 were earned evenly.

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 12 INTERMEDIATE EXAMINATION: MAY, 2022

(iv) The balances of Reserve and Profit and Loss account as on 1 st April,2020 were as
follows:
Reserves Profit and Loss A/c
` `
White Ltd. 30,000 15,000 Profit
Black Ltd. 30,000 10,000 Loss
You are required to prepare consolidated Balance Sheet of the group as on
31st March,2021 as per the requirement of Schedule III of the Companies Act, 2013.
(b) (i) Write a short note on Non-performing assets of a banking company.
(ii) Dee Bank provides you the following information relating to their two cash credit
accounts:
Account A Account B
` In Lakhs ` In Lakhs
Sanctioned limit 4,500 3,200
Drawing power 4,200 2,500
Amount outstanding continuously from 01.01.2021 3,600 2,000
to 31.03.2021
Total Interest debited for the above period 288 315
Total credits for the above period 120 380
State with reason whether the above cash credit accounts are NPA or not?
(15 + 5 = 20 Marks)
Answer
(a) Consolidated Balance Sheet of White Ltd. and its Subsidiary Black Ltd.
as at 31st March, 2021
Particulars Note No. (`)
I. Equity and Liabilities
(1) Shareholder's Funds
(a) Share Capital 1 6,50,000
(b) Reserves and Surplus 2 2,55,000
(2) Minority Interest 3 1,05,000
(3) Current Liabilities
(a) Trade Payables 4 1,90,000
Total 12,00,000

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 PAPER – 5 : ADVANCED ACCOUNTING 13

II. Assets
(1) Non-current assets
(a) Property, Plant and Equipment 5 9,31,000
(2) Current assets
(i) Inventory 6 1,70,000
(ii) Cash & cash equivalent 7 99,000
Total 12,00,000
Notes to Accounts
`
1. Share capital
6,500 equity shares of ` 100 each, fully paid up 6,50,000
Total 6,50,000
2. Reserves and Surplus
General Reserves 60,000
Profit and Loss Account 1,50,000
Add: 75% share of Black Ltd.’s post-acquisition profits
(W.N.1) 37,500 1,87,500
Capital reserve (W.N. 5) 7,500
Total 2,55,000
3. Minority interest in Black Ltd. (WN 4) 1,05,000
4. Trade payables
White Ltd. 1,15,000
Black Ltd. 75,000 1,90,000
5. Property, plant and equipment
White Ltd. 5,80,000
Black Ltd. 3,51,000 9,31,000
6 Inventory
White Ltd. 50,000
Black Ltd. 1,20,000 1,70,000
7 Cash & cash equivalent
White Ltd. 39,000
Black Ltd. 54,000
Cash in transit 6,000 99,000

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 14 INTERMEDIATE EXAMINATION: MAY, 2022

Working Notes:
1. Post-acquisition profits of Black Ltd. `
profits earned during the year = ` 90,000 + `10,000 1,00,000
Pre-acquisition profits (1.4.20 to 30.9.20) 50,000
Post-acquisition profits (1.10.20 to 31.3.21) 50,000
White Ltd.’s share 75% of 50,000 37,500
Minority Interest 25% of 50,000 12,500
2. Pre-acquisition profits and reserves of Black Ltd.
Reserves as on 1.4.2020 30,000
Profit and Loss Account 40,000
[10,000 (loss as on 1.4.20) +50,000 (6 month Adjusted pre-acquisition
profits)]
70,000
White Ltd.’s = (75%) × 70,000 52,500
Minority Interest= (25%) × 70,000 17,500
3. Post-acquisition reserves of Black Ltd.
Post-acquisition reserves (Total reserves less pre-acquisition nil
reserves = ` 30,000 – 30,000)
4. Minority Interest
Paid-up value of (3,000 – 2,250) = 750 shares
held by outsiders i.e. 750 × ` 100 75,000
Add: 25% share of pre-acquisition reserves & Profit 17,500
25% share of post-acquisition profit 12,500
1,05,000
5. Capital Reserve
Price paid by White Ltd. for 2,250 shares (A) 2,70,000
Intrinsic value of the shares-
Paid-up value of 2,250 shares held by White Ltd. 2,25,000
i.e. 2,250 × ` 100
Add 75% share of pre-acquisition reserves & profit
(70,000 x 75%) 52,500 (B) 2,77,500
Capital reserve (A – B) 7,500

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 PAPER – 5 : ADVANCED ACCOUNTING 15

(b) (i) Performing assets are also called as Standard Assets. A non-performing asset is a
loan or advance for which the principal or interest payment remains overdue for a
period of 90 days. The assets other than performing assets are called Non-Performing
Assets (NPA). NPAs are classified into three groups: (i) sub-standard Assets (ii)
doubtful assets & (iii) Loss Assets.
(i) Sub-standard Assets –A Sub-standard asset is one which has been classified
as an NPA for a period not exceeding 12 months.
(ii) Doubtful Assets - An asset would be classified as doubtful if it has remained in
the substandard category for a period of at least12 months.
(iii) Loss Assets - A loss asset is one where loss has been identified by the bank
or internal or external auditors or the RBI inspectors but the amount has not
been written off, wholly or partly. In other words, such an asset is considered
uncollectible or if collected of such little value that its continuance as a bank
asset is not warranted although there may be some salvage or recovery value.
Income from non-performing assets can only be accounted for as and when it is
actually received.
(ii)
Account A Account B
` in lakhs ` in lakhs
Sanctioned limit 4,500 3,200
Drawing power 4,200 2,500
Amount outstanding continuously from 1.01.2021 3,600 2,000
to 31.03.2021
Total interest debited 288 315
Total credits 120 380
Is credit in the account is sufficient to cover the No Yes
interest debited during the period? or
Is amount ‘overdue’ for a continuous period of 90 Yes No
days?
NPA Not NPA
Question 4
(a) Ajay, Vijay and Sanjay have been in partnership for a number of years, sharing profits and
losses in the ratio 7:7: 4 as a wholesale stationer running business under the name "AVS
Traders". On 31 st March,2021, it was found that some frauds were committed by Sanjay
during the year 2020-2021. So, it was decided to dissolve the partnership business on
31st March,2021 when their Balance sheet stood as under:

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 16 INTERMEDIATE EXAMINATION: MAY, 2022

Balance Sheet as at 31 st March,2021

Liabilities Amount (`) Assets Amount (`)
Capital accounts: Building 1,90,000
Ajay 1,80,000 Inventory 1,30,000
Vijay 1,80,000 3,60,000 Investments 50,000
General Reserve 36,000 Trade Debtors 70,000
Trade Creditors 80,000 Cash & Bank 26,000
Bills payables 30,000 Sanjay's Capital (overdrawn) 40,000
5,06,000 5,06,000
Additional Information:
(i) Following frauds were committed by Sanjay:
(1) Investments costing `8,000 were sold by Sanjay at ` 11,000 and the funds were
transferred to his personal account. This sale was omitted from firm's books.
(2) A cheque for ` 7,000 received from trade debtors was not recorded in the books
and was misappropriated by Sanjay.
(ii) A trade creditor agreed to take over investments of the book value of ` 9,000 at
` 13,000. The rest of the trade creditors were paid off at a discount of 10%.
(iii) Other assets were realized as follows:
Inventory ` 1,20,000
Building 110% of book value
Investments The rest of the investments were sold at a profit of ` 7,000
Trade Debtors The rest of the trade debtors were realised at a discount of 10%
(iv) The Bills payables were settled at a discount of, `500.
(v) The expenses of dissolution amounted to `8,060.
(vi) It was found out, that realisation from Sanjay's private assets would be ` 7,000.
You are required to prepare
(1) Realisation Account
2) Cash & Bank Account
(3) Partners’ Capital Accounts.
(All workings should form part of your answer)
(b) Explain the nature of a Limited Liability Partnership. Who can be a designated partner in a
Limited Liability Partnership and what are their liabilities? (15 + 5 = 20 Marks)

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Answer
(a) Realization Account
Particulars ` Particulars `
To Building 1,90,000 By Trade creditors 80,000
To Inventory 1,30,000 By Bills payable 30,000
To Investment 50,000 By Cash
To Trade Debtors 70,000 Building 2,09,000
To Cash - Trade creditors 60,300 Inventory 1,20,000
paid (W.N.1)
To Cash-expenses 8,060 Investments (W.N.2) 40,000
To Cash-bills payable 29,500 Trade Debtors 56,700 4,25,700
(30,000-500) (W.N. 3)
To Partners’ Capital A/cs By Sanjay’s Capital A/c 7,000
(Trade Debtors-
unrecorded)
Ajay 6,160 By Sanjay’s Capital A/c 11,000
(Investments-
unrecorded)
Vijay 6,160
Sanjay 3,520 15,840
5,53,700 5,53,700

Cash and Bank Account

Particulars Amount Particulars Amount
` `
To Balance b/d 26,000 By Realization A/c- Trade 60,300
creditors paid
To Realization A/c– By Realization A/c-bills 29,500
assets realized payable
Building 2,09,000 By Realization A/c- 8,060
expenses
Inventory 1,20,000 By Capital accounts:
Investments (W.N.2) 40,000 Ajay 1,80,420
Trade Debtors 56,700 4,25,700 Vijay 1,80,420
(W.N. 3)

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To Sanjay’s capital A/c 7,000

4,58,700 4,58,700
Partners’ Capital Accounts
Particulars Ajay Vijay Sanjay Particulars Ajay Vijay Sanjay
` ` ` ` ` `
To Balance b/d 40,000 By Balance b/d 1,80,000 1,80,000 -
To Trade Debtors- 7,000 By General 14,000 14,000 8,000
misappropriation reserve
To Investment- 11,000 By Realization 6,160 6,160 3,520
misappropriation profit
To Sanjay’s 19,740 19,740 By Cash A/c 7,000
capital A/c
(W.N. 4)
To Cash A/c 1,80,420 1,80,420 By Ajay’s 19,740
capital A/c
By Vijay’s
capital A/c 19,740
2,00,160 2,00,160 58,000 2,00,160 2,00,160 58,000

Working Notes:
1. Amount paid to Trade creditors
`
Book value 80,000
Less: Creditors taking over investments (13,000)
67,000
Less: Discount @ 10% (6,700)
60,300
2. Amount received from sale of investments
`
Book value 50,000
Less: Misappropriated by Sanjay (8,000)
42,000

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Less: Taken over by a trade creditor (9,000)

33,000
Add: Profit on sale of investments 7,000
40,000
3. Amount received from Trade debtors
`
Book value 70,000
Less: Unrecorded receipt (7,000)
63,000
Less: Discount @ 10% (6,300)
56,700
4. Deficiency of Sanjay
`
Balance of capital as on 31 st March, 2021 40,000
Debtors-misappropriation 7,000
Investment-misappropriation 11,000
58,000
Less: Realization Profit (3,520)
General reserve (8,000)
Contribution from private assets (7,000)
Net deficiency of capital 39,480
This deficiency of ` 39,480 in Sanjay’s capital account will be shared by other
partners Ajay and Vijay in their capital ratio of 1:1
Accordingly,
Ajay’s share of deficiency = [39,480/2] = ` 19,740
Vijay’s share of deficiency = [39,480/2] = ` 19,740
(b) Nature of Limited Liability Partnership: A limited liability partnership is a body corporate
formed and incorporated under the LLP Act, 2008 and is a legal entity separate from that
of its partners. A limited liability partnership shall have perpetual succession and any
change in the partners of a limited liability partnership shall not affect the existence, rights,
or liabilities of the limited liability partnership.

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 20 INTERMEDIATE EXAMINATION: MAY, 2022

Designated partners: Every limited liability partnership shall have at least two designated
partners who are individuals and at least one of them shall be a resident in India. In case
of a limited liability partnership in which all the partners are bodies corporate or in which
one or more partners are individuals and bodies corporate, at least two individuals who are
partners of such limited liability partnership or nominees of such bodies corporate shall act
as designated partners.
Liabilities of Designated partners: As per the LLP Act, unless expressly provided
otherwise in this Act, a designated partner should be-
(a) responsible for the doing of all acts, matters, and things as are required to be done
by the limited liability partnership in respect of compliance of the provisions of this
Act including filing of any document, return, statement, and the like report pursuant
to the provisions of this Act and as may be specified in the limited liability partnership
agreement; and.
(b) Liable to all penalties imposed on the limited liability partnership for any contravention
of those provisions.
Question 5
(a) Quick Ltd. has the following capital structure as on 31 st March,2021:
` in Crores
(1) Share Capital: 462
(Equity Shares of ` 10 each, fully paid)
(2) Reserves and Surplus:
General Reserve 336
Securities Premium Account 126
Profit and Loss Account 126
Statutory Reserve 180
Capital Redemption Reserve 87
Plant Revaluation Reserve 33 888
(3) Loan Funds:
Secured 2,200
Unsecured 320 2,520
On the recommendations of the Board of Directors, on 16 th September, 2021, the
shareholders of the company have approved a proposal to buy-back of equity shares. The
prevailing market value of the company's share is ` 20 per share and in order to induce
the existing shareholders to offer their shares for buy-back, it was decided to offer a price
of 50% over market value. The company had sufficient balance in its bank account for the
buy-back of shares.

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You are required to compute the maximum number of shares that can be bought back in
the light of the above information and also under a situation where the loan funds of the
company were either ` 1,680 Crores or ` 2,100 Crores.
Assuming that the entire buy-back is completed by 31 st December,2021, Pass the
necessary accounting entries (narrations not required) in the books of the company in each
situation.
(b) Deluxe Commercial Bank has the following capital funds and assets:
` In Crores
Capital Funds and Assets
Capital Funds:
Paid up Equity Share Capital 2,400
Statutory Reserves 480
Securities Premium 480
Capital Reserve (of Which ` 128 Crores were due to revaluation of
assets and balance due to sale of assets) 288
Profit and Loss Account (Dr. Balance) 48
Assets:
(i) Cash balance with Reserve Bank of India. 192
(ii) Claims on Banks 544
(iii) Other Investments 7,360
Loans and Advances:
(i) Guaranteed by Government of India and State Governments. 1,280
(ii) Bank Staff Advances -fully covered by superannuation benefit 160
Other loans and advances 544
Other Assets:
(i) Premises, Furniture & Fixtures 12,560
(ii) Intangible Assets 48
Off-Balance Sheet Items:
Acceptance, Endorsements and Letters of Credit 4,800
Guarantee and other obligations 160

You are required to:

(i) Segregate the capital funds into Tier I and Tier II capitals, and
(ii) Find out the risk-adjusted asset and risk weighted assets ratio. (10 +10 = 20 Marks)

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 22 INTERMEDIATE EXAMINATION: MAY, 2022

Answer
(a) Statement determining the maximum number of shares to be bought back
Number of shares
Particulars When loan fund is
` 2,520 crores ` 1,680 crores ` 2,100 crores
Shares Outstanding Test (W.N.1) 11.55 11.55 11.55
Resources Test (W.N.2) 8.75 8.75 8.75
Debt Equity Ratio Test (W.N.3) Nil 5.25 Nil
Maximum number of shares that
can be bought back [least of the Nil 5.25 Nil
above]

Journal Entries for the Buy-Back

(applicable only when loan fund is ` 1,680 crores)
` in crores
Particulars Debit Credit
(a) Equity share buy-back account Dr. 157.5
To Bank account 157.5
(b) Equity share capital account (5.25 x ` 10) Dr. 52.5
Securities premium account (5.25 x ` 20) Dr. 105
To Equity share buy-back account 157.5
(c) General reserve account Dr. 52.5
To Capital redemption reserve account 52.5
Working Notes:
1. Shares Outstanding Test
Particulars (Shares in crores)
Number of shares outstanding 46.2
25% of the shares outstanding 11.55
2. Resources Test
Particulars
Paid up capital (` in crores) 462
Free reserves (` in crores) (336+126+126) 588

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Shareholders’ funds (` in crores) 1,050

25% of Shareholders fund (` in crores) ` 262.5 crores
Buy-back price per share ` 30
Number of shares that can be bought back (shares in 8.75 crores shares
crores)
3. Debt Equity Ratio Test
Particulars When loan fund is
` 2,520 crores ` 1,680 crores ` 2,100 crores
(a) Loan funds (` in 2,520 1,680 2,100
crores)
(b) Minimum equity to be
maintained after buy- 1,260 840 1,050
back in the ratio of 2:1
(` in crores)
(c) Present equity 1,050 1,050 1,050
shareholders fund
(` in crores)
(d) Future equity N.A. 997.5 N.A.
shareholder fund (1,050-52.5)
(` in crores) (See
Note 2)
(e) Maximum permitted Nil 157.5 (by Nil
buy-back of Equity simultaneous
(` in crores) [(d) – (b)] equation)
(See Note 2)
(f) Maximum number of 5.25 (by
shares that can be simultaneous
bought back @ Nil equation) Nil
` 30 per share
(shares in crores)
(See Note 2)
Note:
1. Under Situations 1 & 3 the company does not qualify for buy-back of shares as per
the provisions of the Companies Act, 2013.
2. As per section 68 of the Companies Act, 2013, the ratio of debt owed by the company
should not be more than twice the capital and its free reserve after such buy-back.
Amount transferred to CRR and maximum equity to be bought back will be calculated
by simultaneous equation method.

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 24 INTERMEDIATE EXAMINATION: MAY, 2022

Suppose amount equivalent to nominal value of bought back shares transferred to

CRR account is ‘x’ and maximum permitted buy-back of equity is ‘y’.
Then
Equation 1: (Present equity – Nominal value of buy-back transfer to CRR) – Minimum
equity to be maintained= Maximum permissible buy-back of equity
(1,050 –x)-840 = y
Since 210 – x = y
Maximum buy-back
Equation 2: ( x Nominal Value)
Offer price for buy-back
= Nominal value of the shares bought –back to be transferred to CRR

=  y 10  = x
 30 
Or 3x = y (2)
by solving the above two equations we get
x = ` 52.5 crores
y = ` 157.5 crores
3. Statutory reserves, capital redemption reserve and plant revaluation reserves are not
free reserves.
4. For calculation of debt -equity ratio both secured and unsecured loans have been
considered.
(b)
(` in crores)
(i) Capital Funds - Tier I:
Paid up Equity Share Capital 2,400.00
Securities premium 480.00
Statutory Reserve 480.00
Capital Reserve (arising out of sale of assets) 160.00
3,520.00
Less: Intangible assets 48.00
Profit and Loss Account (Dr. balance) 48.00 (96.00)
Total 3,424.00
Capital Funds - Tier II:
Capital Reserve (arising out of revaluation of assets) 128.00

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 PAPER – 5 : ADVANCED ACCOUNTING 25

Less: Discount to the extent of 55% (70.40) 57.60

Total Capital Funds 3,481.60
(ii) Calculation of Risk Adjusted Assets
` in crore Weight in % Amount
(` in crore)
Funded Risk Assets
Cash Balance with RBI 192 0 0
Claims on banks 544 20 108.80
Other Investments 7,360 100 7,360
Loans and Advances:
(i) Guaranteed by government 1,280 0 0
(ii) Staff advances fully covered by
superannuation benefits 160 20 32
(iii) Other Loans 544 100 544
Premises, furniture and fixtures 12,560 100 12,560
20,604.80

Off-Balance Sheet Items ` in crores Credit Conversion ` in crore

Factor
Acceptances, Endorsements and 4,800 100 4,800
Letters of credit
Guarantees and other obligations 160 100 160
4,960
Capital Funds (Tier I & Tier II)
Risk Weighted Assets Ratio: × 100
Risk Adjusted Assets+off Balance sheet items
Capital Adequacy Ratio = 3424 + 57.60/ 20,604.80 + 4,960
= (3481.60/25,564.80) x 100
= 13.62% (rounded off)
Question 6
Answer any four of the following:
(a) XYZ Ltd. has 5 business segments. Profit / Loss of each of the segments for the year
ended 31st March,2022 has been provided below. You are required to identify from the
following whether reportable segments or not reportable segments, on the basis of
"profitability test" as per AS-17.

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 26 INTERMEDIATE EXAMINATION: MAY, 2022

Segment Profit (Loss) ` in lakhs

A 225
B 25
C (175)
D (20)
E (105)
(b) In a limited company, Equity Share Capital is held by X, Y and Z in the proportion of
30:30:40. Also A, B and C hold preference share capital in the proportion of 50:30:20. The
company has not paid the dividend to holders of preference share capital for more than 3
years. Given that the paid-up equity share capital of the company is ` 1 Crore and that of
preference share capital is ` 50 Lakh
(i) Find out the relative weight in the voting right of equity shareholders and preference
shareholders.
(ii) Also the company proposing to issue equity shares with differential voting rights
(DVR) to the extent of ` 50 lakhs. Assuming the company fulfils other conditions
pertaining to the issue of shares with DVR. Can the company issue the shares with
DVR?
(c) What are the disclosures requirements for operating leases by the lessee as per AS -19?
(d) The position of Bad Luck Limited on its liquidation on 31 March, 2022 is as under:
Issued and paid up capital:
90,000, 10% Preference Shares of ` 100 each, fully paid
90,000 Equity Shares of ` 100 each, fully paid up
30,000 Equity Shares of ` 50 each, 40 paid up
10,000 Equity Shares of ` 10 each, 4 paid up
Calls in arrears are ` 3,00,000 and calls received in advance ` 2,55,000, Preference
dividends are in arrears for two years. Amount left with the liquidator after discharging of
all liabilities is ` 1,25,15,000. Articles of Association of the company provide for payment
of preference dividend arrears in priority to return of equity capital.
You are required to prepare the Liquidator's Final Statement of Account.
(e) On 1st April,2021, a company offered 100 shares to each of its 5,000 employees at ` 50
per share. The employees are given a year to accept the offer. The shares issued under
the plan shall be subject to lock-in on transfer for three years from the grant date. The
market price of shares of the company on the grant date is ` 60 per share. Due to post
vesting restrictions on transfer, the fair value of shares issued under the plan is estimated
at ` 56 per share and fair value per option worked out to be ` 6.

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 PAPER – 5 : ADVANCED ACCOUNTING 27

On 31st March,2022, 4,000 employees accepted the offer and paid ` 50 per share
purchased. Nominal value of each share is ` 10.
You are required to pass journal entries (with narration) as would appear in the books of
the company up to 31 st March,2022. (4 Parts x 5 Marks = 20 Marks)
Answer
(a) As per AS 17 ‘Segment Reporting’, a business segment or geographical segment should
be identified as a reportable segment if:
Its segment results whether profit or loss is 10% or more of:
 The combined result of all segments in profit; i.e. ` 250 Lakhs or
 The combined result of all segments in loss; i.e. ` 300 Lakhs
Whichever is greater in absolute amount i.e. ` 300 Lakhs.
Operating Absolute amount of Profit Reportable Segment
Segment or Loss (` In lakhs) Yes or No
A 225 Yes
B 25 No
C 175 Yes
D 20 No
E 105 Yes
On the basis of the profitability test (result criteria), segments A, C and E are reportable
segments (since their results in absolute amount is 10% or more of ` 300 lakhs i.e. 30
lakhs).
(b) (i) The respective voting right of various shareholders will be
X = 2/3X30/100 = 3/15 OR 20%
Y = 2/3X30/100 = 3/15 OR 20%
Z = 2/3X40/100 = 4/15 OR 26.67%
A = 1/3X50/100 = 1/6 OR 16.67%
B = 1/3X30/100 = 1/10 OR 10%
C = 1/3X20/100 = 2/30 OR 6.67%
Hence their relative weights are 3/15: 3/15: 4/15: 1/6: 1/10:2/30 or 6:6:8:5:3:2.
(ii) The voting power in respect of shares with differential rights shall not exceed seventy
four percent of the total voting power including voting power in respect of equity
shares with differential rights (DVR) issued at any point of time as per Companies
(Share Capital and Debentures) Rules.

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 28 INTERMEDIATE EXAMINATION: MAY, 2022

`
Existing Equity Share Capital paid up 1,00,00,000.00
Proposed DVR 50,00,000.00
Post DVR Equity Share Capital paid up 1,50,00,000.00
% of shares with DVR to total paid up Equity Share Capital 33.33%
(including Equity Shares with DVR) (` 50,00,000 /
` 150,00,000 X 100)
In the given case 33.33% of shares with DVR to total post issue paid up Equity Capital
(including Equity Shares with DVR) is not exceeding 74%. Hence, the company can
issue such equity shares.
(c) As per AS 19, lessees are required to make following disclosures for operating leases:
(a) the total of future minimum lease payments under non-cancelable operating leases
for each of the following periods:
(i) not later than one year;
(ii) later than one year and not later than five years;
(iii) later than five years;
(b) the total of future minimum sublease payments expected to be received under non -
cancelable subleases at the balance sheet date;
(c) lease payments recognised in the statement of profit and loss for the period, with
separate amounts for minimum lease payments and contingent rents;
(d) sub-lease payments received (or receivable) recognised in the statement of profit and
loss for the period;
(e) a general description of the lessee's significant leasing arrangements including, but
not limited to, the following:
(i) the basis on which contingent rent payments are determined;
(ii) the existence and terms of renewal or purchase options and escalation clauses;
and
(iii) restrictions imposed by lease arrangements, such as those concerning
dividends, additional debt, and further leasing.
Note: The Level II and Level III non-corporate entities (and SMCs) need not make
disclosures required by (a), (b) and (e) above.

© The Institute of Chartered Accountants of India

 PAPER – 5 : ADVANCED ACCOUNTING 29

(d) Liquidator’s Final Statement of Account

Receipts ` Payments `
Cash with liquidator 125,15,000 Return to contributors:
Realization from: Arrears of Preference dividend 18,00,000
Calls in arrears 3,00,000 Preference shareholders 90,00,000
Final call of ` 4 per equity Calls in advance 2,55,000
share on 10,000 shares Equity shareholders
(` 4  10,000) See WN 40,000 (90,000  ` 20) 18,00,000
128,55,000 128,55,000
Working Notes:
(i) Calculation of amount available with liquidator after paying pref. shareholders
`
Cash account balance 125,15,000
Less: Payment for dividend 18,00,000
Preference shareholders 90,00,000
Calls in advance 2,55,000 (110,55,000)
14,60,000
Add: Calls in arrears 3,00,000
17,60,000
(ii) Paid up Share capital = 90,00,000 + 12,00,000 + 40,000=` 1,02,40,000
(iii) Deficiency for equity shareholders:
` 1,02,40,000 - ` 17,60,000 = ` 84,80,000
(iv) Nominal Value of Share Capital
= ` 90,00,000 + 15,00,000+1,00,000 = 1,06,00,000
(v) % of deficiency to be borne by each equity shareholder:
= (` 84,80,000 / ` 1,06,00,000) x 100 = 80%
(vi) Amount refunded/recovered from equity shareholders:
90,000 shares 30,000 shares 10,000 shares
of ` 100 each of ` 50 each of ` 10 each
Paid up per share ` 100 ` 40 `4

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 30 INTERMEDIATE EXAMINATION: MAY, 2022

Deficiency to bear per ` 80 ` 40 `8

share (80% of nominal
value)
To refund ` 20 NIL To recover ` 4
per share per share

Note: Alternative presentation of the above working notes may be provided in the answer.
(e) Fair value of an option = ` 56 – ` 50 = ` 6
Number of shares issued = 4,000 employees x 100 shares = 4,00,000 shares
Fair value of ESOP = 4,00,000 shares x ` 6 = ` 24,00,000
Vesting period = 1 year
Expenses recognized in 2021 – 22 = ` 24,00,000
Date Particulars ` `
31.03.2022 Bank (4,00,000 shares x ` 50) Dr. 200,00,000
Employees stock compensation expense Dr. 24,00,000
A/c
To Share Capital (4,00,000 shares x 40,00,000
` 10)
To Securities Premium 184,00,000
(4,00,000 shares x ` 46)
(Being option accepted by 4,000
employees & payment made @ ` 56
share)
Profit & Loss A/c Dr. 24,00,000
To Employees stock compensation 24,00,000
expense A/c
(Being Employees stock compensation
expense transferred to Profit & Loss A/c)

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